The Dow and the S&P 500 indexes were both up 2.5% and the Nasdaq index was up 3.1% today. Is this a sign of things to come? I wouldn’t mind if it were. My 401(k) has been decimated this year. That’s a literal decimation, a reduction of 10% of its value. Based on the short history of stock market recessions in the United States, the worst may be over.
The S&P 500 passed a total decline of 20% from last October’s peak on July 9. Here is what history has to say about 20% declines, the signal of a “bear market.”
[S]oon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average…
So far, this bear market has unfolded exactly as the past nine did. On average, the nine crossed the 20% decline point nine months after beginning their decline. We’re right on schedule. The past bear markets lasted, on average, another five months…
My hunch is that the market will decline another 10% or so before it hits bottom.
History is generally a good guide, even though the human brain often has a hard time remembering history as it actually occurred. Looking at the numbers is more reliable than memory, so there may be hope for the market in store by the end of the year. By investments accounts will be thankful.
Goodbye, Bear Market?, Steven Goldberg, Kiplinger, July 14, 2008