Charting bear and bull markets

Bull market surges have been longer and stronger than the bear markets that preceded them.

Bear markets occur when a share market falls by 20 per cent or more from its most recent trading high.

Volatile economic and investment conditions caused the United States share market to fall into bear market territory in 2022. Fortunately, for most Australian investors, our broad share market managed to stay of the bear woods even though it did record an overall annual loss.

Since the start of this year the US share market has regained much of the ground it lost in 2022.

And the chart below gives a good perspective on the length of bear markets over time versus bull markets – the term used to describe when markets are rising over a prolonged period.

Bear market facts

While bear markets can be daunting, on average they have lasted much shorter than bull markets and have had far less of an effect on long-term performance.

Bear markets are challenging, but bull markets have been longer and stronger

Note: Although the downturns that began in August 1987 (related to Black Monday) and February 2020 (related to the start of the COVID-19 pandemic) don’t meet a widely accepted definition of a bear market because they lasted less than two months, we are counting them as bear markets and including them in our analysis because of their historic nature.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Sources: Vanguard calculations, as of December 31, 2022, using the MSCI World Index from January 1, 1980, through December 3, 1987, and the MSCI ACWI thereafter. Indexed to 100 as of December 31, 1979.

From January 1, 1980, through December 31, 2022, the average length of a bull market has been nearly four times that of a bear market.

Similarly, the depth of losses from a bear market has paled in comparison with the magnitude of bull-market gains.

That’s one reason for sticking to a well-thought-out investment plan: Losses from a bear market have typically given way to longer and stronger gains.

It’s worth noting that although the downturns that began in August 1987 (related to Black Monday) and February 2020 (related to the start of the COVID-19 pandemic) don’t meet a widely accepted definition of a bear market because they lasted less than two months, we are counting them as bear markets and including them in our analysis because of their historic nature and the magnitudes of their declines.

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