How Long Will the Bear Market Last

The U.S stock market has been brutal in 2022.

Through the first two quarters of the year, the S&P 500 is down 20%.

While the market is up slightly in July, it’s not much of a consolation.

We are in a bear market, and it doesn’t feel good.

On average, bear markets last 14.0 months.

We are 6.3 months into the current bear market. Using history as a guide, the bear market would have to continue for 8 months to hit its “average” duration.

The S&P 500 is down 18.7% on a total return basis. The current drawdown is about halfway to its average “bear market drawdown” of 35.7%.

So there could be more pain on the way.

But there is some good news….

In March 2020, Verdad published some great research about crisis investing.

Their conclusions were quite encouraging. In short, if you invest 3 months after the S&P 500 drops 20%, the 12 month and 24 month returns look terrific for all stocks.

It really doesn’t matter what (growth/value or small/large) you bought, the returns look very good.

The pattern held in 2020 as well.

The S&P hit a 20% drawdown on March 13, 2020.

If you had bought the S&P 500 on June 12, 2020, 3 months after the 20% drawdown threshold was breached, your returns were good:

  • 12 month total return for S&P 500: +41.8%
  • 24 month total return for S&P 500: +27.0%

The obvious takeaway is that September 2022 (3 months after the bear market began) is probably a good time to get long the market.