Are you ready for the next bull market?

Are you ready for the next bull market?

(Trevor Jennewine)

Over the past year, soaring inflation has challenged the strength of the economy, causing the stock market to decline sharply. In fact, the broad base S&P500 had its worst first half since 1970, and the index went into bearish territory in the second quarter.

The S&P 500 has since rebounded slightly – it was 17% off its peak on September 12 – but the bear market isn’t technically over until the index clears its previous peak. For context, the S&P 500 last peaked at 4,797 on January 3, 2022. That was 253 days ago at the time of this writing.

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Many investors are probably wondering how long the downturn will last. Here’s what you need to know.

Image source: Getty Images.

How long do bear markets last?

The S&P 500 has fallen into correction territory 26 times in the past five decades, meaning the market falls 10% or more about once every 1.9 years. Bear markets are more severe market corrections. The S&P 500 has fallen into a bear market seven times in the past five decades, meaning the market falls 20% or more about once every 7.1 years.

For the bear markets of the past 50 years, the chart below shows the start date, the date of the trough, the maximum loss, and the number of days it took the S&P 500 to bottom. Of course, the bear market that started earlier this year is not included as the S&P 500 could fall further.

Start date

low date

Maximum loss

Bottom time

1/11/1973

10/03/1974

48.2%

630 days

11/28/1980

8/12/1982

27.1%

622 days

08/25/1987

12/04/1987

33.5%

101 days

03/24/2000

09/10/2002

49.1%

929 days

10/09/2007

03/09/2009

56.8%

517 days

02/19/2020

03/23/2020

33.9%

33 days

Obviously, bear markets vary wildly in duration and severity. But historical data can still provide meaningful insight into the current situation. Specifically, the S&P 500 has fallen an average of 41.4% during bear markets over the past five decades, and it has taken an average of 472 days to bottom. In other words, if the current bear market falls exactly in line with the mean, the S&P 500 is still 219 days from the bottom.

To build a complete picture of past market cycles, investors should also consider the bull markets of the past five decades. The chart below shows the start date (note these are the same as the bottom dates shown above), peak date, peak gain, and number of days it took the S&P 500 to reach a peak.

Start date

peak date

Maximum gain

It’s time to reach the top

10/03/1974

11/28/1980

125.6%

2,248 days

8/12/1982

08/25/1987

228.8%

1,839 days

12/04/1987

03/24/2000

582.1%

4,494 days

09/10/2002

10/09/2007

101.5%

1,826 days

03/09/2009

02/19/2020

400.5%

3,999 days

03/23/2020

03/01/2022

114.4%

651 days

Based on the above data, the S&P 500 has risen 258.8% on average during bull markets over the past five decades, and it has taken an average of 2,510 days to peak. In other words, bull markets are higher and last longer than bear markets. For this reason, bull markets have always erased any losses incurred by the S&P 500 during bear markets.

How to prepare for the next bull market?

The most important thing an investor can do to prepare for the next bull market is to maintain a long-term mindset. Ignore the daily noise and instead focus on the bigger picture. The worst mistake an investor can make is trying to time market cycles.

Consider the following data from JPMorgan Chase: If you had invested $10,000 in the S&P 500 at the start of 2002, that sum would have increased by 517% to reach $61,685 by the end of 2021. But if you had missed the 10 best days during this period — only 10 days — that initial sum would have only increased by 183% to $28,260 by the end of 2021. And guess what? Six of the top 10 days during this period actually occurred during a bear market, and two of the remaining four days actually occurred the day after a bear market bottomed.

In other words, the best days in the stock market often occur during a bear market, and missing just a few of these days can do huge damage to your portfolio. This means that the best way to prepare for a bull market is to stay invested in a downturn. Even better, investors should continue to buy high-quality stocks on a regular basis.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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