A History Lesson on Bear Markets

Question - prior to the 2020 COVID-related bear market, when was the last time we experienced an almost-20% drop? The answer may surprise you. The markets continue to be extremely volatile, making many people uneasy. Should you be worried? Brendan helps you put this market in perspective and get an idea of what we may see next.

Topics Discussed:

  • What did the last non-COVID bear market look like

  • Factors that created this bear market

  • Recovery time for this bear market

  • Recovery time for other bear markets


Hi, and welcome to another episode of Coffee with Brendon. Today we're going to have another history lesson on the markets. It is May 24 today, and we just finished up another week, a seventh straight week of market losses, the markets down right about 18% year to date right now. And while most of my clients are not panicked, they're certainly not comfortable with what's going on with the market. And so I am going to once again, give you a little bit of a pep talk but more of a history lesson on what causes bear markets. And when was the last one that we're in. So let's start right there, when outside of COVID, because COVID, market dropped the month of February through March of 2020, dropped about 34%. But taking that out of the picture, because we recovered almost just as quickly as the market went down. Taking that out of the picture before COVID.

When was the last time the market experienced what we're experiencing today? So I'll give you a moment to think about that. Play the Jeopardy music.

And the answer is 2018. So 2018, over the full calendar year, the market dropped about 8%. But if you looked at it from the highest point and hit throughout the year to the lowest point that it hit throughout the year, it went down just about 20%. And in our world, that is what's called a bear market. So whenever you hear a bear market that typically represents that a stock market, whether it's the Dow Jones, whether it's the NASDAQ, whether it's the s&p 500, and in this case, we're going to use the s&p 500 has gone from a peak to a trough in there's a 20% difference between those two. So let's take a look at what was happening back then, which triggered this. So let me start sharing my screen.

This was a Washington Post interactive graphic that I came across, which I absolutely love. I love how they actually did this. And so what they're pretty much showing is there are two factors that impacted the markets in 2018, which cause this big drop. And so let me kind of fast forward to, to this, which is pretty much showing what the market did the entire year. So there's that 8% drop from the beginning of the year to the end of the year. And you can see a lot of the damage happened at in the last quarter of the year, pretty much again from September, which was right up here where it peak, September, all the way down to the end of the year. So what happened what happened in December that triggered all of this. And it was two things. One was a trade war between the US and China.

Trump pretty much increased his rhetoric around that time where he was talking about levying tariffs on Chinese imports, and not surprisingly, China, China, China reciprocated and then coupled with that the Fed was increasing interest rates and and on December 19, they announced a fourth interest rate increase, which caused the market to have this type of drop. And the it all culminated or all came together Christmas Eve when we're all going to our Christmas Eve parties, and not really paying much attention to the market. But that was the worst 2018 was the worst Christmas Eve from a performance standpoint that we had ever seen. Now, if we go back to the history of that, you can see that it took about 65 days to go from the top of the market down to the bottom of the market. So the top of the market was, as we mentioned, September, and the bottom of the market was Christmas Eve and it took 65 days for it to go from peak to trough. So of course the question that everyone has is how quickly did it recover? And one of the reasons why you probably don't remember this one is that it didn't take that long for it to come back. Now. Again, the reason I'm showing you this is not to promise that it's going to take at one days to recover all the losses that had been incurred, but more to just show you that at that time, the Market was down 19, almost 20%. And people were really anxious about things they didn't know if the trade war was going to continue to spiral. And this was going to really increase the price of goods coming from China, which is what's happening right now with the supply chain issues. Or if the Fed was going to continue to raise rates continue to raise rates continue to raise rates until it, it pushed the economy into a recession.

People were really nervous at that, at that time. And when, you know, they saw their December statements and saw this gigantic drop of double digits, it certainly spooked a lot of people. And the same thing is going on right now. But you know, you can see here all the different bear markets that have happened since 1950. So again, similar conversation to what I had left last time. But what this is showing us how quickly it took for the markets to come back to go from there, the lows that they hit all the way back to, to recovery. And you can see that, you know, it does take some time, we have some short ones like that 58, day one that happened in 1982. But then you also have one that took 1400 days in 1974. So three, almost four years for that one to come back, or they need my calculator. But But yeah, it took four plus years for the market to come back in 1974. So I don't know, I don't know when the market is going to return to normalcy. But at the end of the day, the one thing that I can say with certainty is historically speaking, the market has always recovered from this. And so for those people that have kept their heads and their wits about them, they realize that, you know, this is a scary time right now.

But again, historically speaking, if you do not panic and you stick with it, the market has always come back. So that's my pep talk for the day, my history lesson for the day. I hope this is helpful. And if you do have any questions, feel free to reach out. Have a great day.


Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents in specific states which are listed on our website at www.waymarkwealth.com

The opinions voiced in this video are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.