{"id":2794,"date":"2009-05-15T13:38:01","date_gmt":"2009-05-15T13:38:01","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2794"},"modified":"2025-03-27T15:48:50","modified_gmt":"2025-03-27T15:48:50","slug":"was-the-bear-market-too-short","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2794","title":{"rendered":"Was the bear market too short?"},"content":{"rendered":"

The recent bear market in equities has been unusually severe. It has also been unusually short by the standards of previous big bears. This suggests that a period of base-building will be necessary before markets can embark on a sustained recovery. <\/p>\n

The table compares the fall in the Dow Industrials between October 2007 and March 2009 with the seven biggest bear markets of the last century. The peak-to-trough decline of 54% exceeds every prior downturn except the depression bear of 1929-32, when prices slumped by 89%.<\/p>\n

The falls in the six other bear markets ranged from 45% to 52%. Prices seem to find a floor after a decline of about a half. This was true even in the 1929-32 bear: after a 48% drop between September and November 1929, equities rallied by 48% before embarking on a further prolonged slide. A recovery from the levels plumbed in March this year was, therefore, predictable.<\/p>\n

If the bear market ended in March, however, it will have been only 17 months in duration – five months less than the shortest of the twentieth century bears. This implies that there may be more work to do on the downside – in terms of time if not price – before a sustained advance can begin. <\/p>\n

Some of the prior bear markets show little resemblance to the recent decline. The 1909-14 and 1937-42 downturns were influenced by world wars. A repeat of 1929-32 is unlikely – policy mistakes made in the early 1930s have so far been avoided.<\/p>\n

The respected financial and economic analyst Tony Plummer argues that equities experience severe bear markets at the end of 30-year economic cycles. He suggests comparing the recent decline with the 1919-21 and 1973-74 bears, which also occurred around 30-year cycle troughs. (Equity market behaviour around the 30-year low in the 1940s was distorted by the war.)<\/p>\n

There is also a case for comparing the recent decline with the 1906-07 bear, which was associated with a major financial panic and extreme banking system distress. As Plummer notes, the failure of the Knickerbocker Trust Company in October 1907 and the subsequent policy response, orchestrated by J P Morgan, contain many parallels with events surrounding Lehman’s bankruptcy last autumn.<\/p>\n

These three bear markets (i.e. 1906-07, 1919-21 and 1973-74) bear a close resemblance, with equities declining by 45-49% over 22-23 months. The chart provides a comparison with the recent decline. Equities undershot the historical range in early 2009, probably reflecting fears of banking system nationalisation, but have since returned to a level consistent with the prior bears.<\/p>\n

If these three earlier cycles are a guide, equities are unlikely to embark on a sustained advance before August \/ September. Until then, prices may consolidate their recent gains or – in a worst case scenario – retest the March lows. The 50% peak-to-trough barrier, however, provides important support.<\/p>\n\n\n<\/col>\n<\/col>\n<\/col>\n<\/colgroup>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Dow Industrials bear markets compared<\/strong><\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
 <\/td>\nDuration<\/strong><\/td>\nMagnitude<\/strong><\/td>\nRecovery<\/strong><\/td>\n<\/tr>\n
 <\/td>\n <\/td>\n <\/td>\nafter year<\/strong><\/td>\n<\/tr>\n
 <\/td>\nmonths<\/td>\n%<\/td>\n%<\/td>\n<\/tr>\n
June 1901 – November 1903<\/td>\n29<\/td>\n-46<\/td>\n59<\/td>\n<\/tr>\n
January 1906 – November 1907<\/td>\n22<\/td>\n-49<\/td>\n65<\/td>\n<\/tr>\n
November 1909 – December 1914<\/td>\n61<\/td>\n-47<\/td>\n85<\/td>\n<\/tr>\n
November <\/span>1919 – August 1921<\/td>\n22<\/td>\n-47<\/td>\n56<\/td>\n<\/tr>\n
September 1929 – July 1932<\/td>\n34<\/td>\n-89<\/td>\n156<\/td>\n<\/tr>\n
March 1937 – April 1942<\/td>\n62<\/td>\n-52<\/td>\n44<\/td>\n<\/tr>\n
January 1973 – December 1974<\/td>\n23<\/td>\n-45<\/td>\n42<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
October 2007 – March 2009<\/td>\n17<\/td>\n-54<\/td>\n <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

\"\"<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The recent bear market in equities has been unusually severe. It has also been unusually short by the standards of previous big bears. This suggests that a period of base-building will be necessary before markets can embark on a sustained recovery. The table compares the fall in the Dow Industrials between October 2007 and March […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2794","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2794","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2794"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2794\/revisions"}],"predecessor-version":[{"id":5103,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2794\/revisions\/5103"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2794"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2794"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2794"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}