We’ve never seen a bear market like the one we just lived through. Nothing comes close in terms of how quickly it started and how quickly it ended.
In just 19 days, the Dow was 20% below its highs. In 22 days, it was 30% below. And in just 27 days, it was all over. The bottom was in. To call this unusual is an understatement. You can see in the chart below that most bear markets take literally hundreds of days to bottom.
This entire bear market ended in under 200 days. The market peaked in February, and by November, it was at new all-time highs.
We’re now 268 days removed from the top in February 2020. I wanted to compare this bear market to all others to get a better sense of how different this one was.
We just lived through the second strongest run from the lows, except for the Great Depression. 268 days after the bottom in 1932, the Dow gained 136%. But since it crashed 89%, it was still 75% off the highs!
What makes this last bear market truly unique is that the Dow is 16% higher than the previous peak. No other bear market in history made up all of their losses this quickly.
Last year was different from all other recessions for obvious reasons that we don’t need to get into.
What’s worth exploring is why this recovery might* be the way going forward. What was unusual might become the norm.
You might not agree with the policy response, but it worked. Sending money directly to companies and individuals helped slow down the economic decline and speed up the recovery. If it worked this time, wouldn’t there be enormous political pressure to do it again next time? Granted, this time was different,** but going forward, why wouldn’t we follow the Covid playbook? And if the market anticipates that reaction, I think it’s worth considering that bear markets might never look the same.
The policy response is only one part of this. The other reason why bear market cycles might shorten is the speed at which information and markets travel these days. This is probably apples to oranges, but in a world where Dogecoin can do what it’s doing, why should it take hundreds of days for the stock market to discount the worst?
I’m a fan of studying the past, but that doesn’t tell you what will happen in the future. The only thing history clearly reveals is that things are always changing.