Market Outlook · March 30, 2020

Anatomy of a Recovery: 4 Stages of a Bear Market

Brent Ciliano

CFA | SVP, Chief Investment Officer

1 The initial fall

From the beginning of the market’s fall on October 9th, through September 19th, the S&P 500 was still technically in a “correction” phase, falling -18.1% (phase #1). Then, the floor fell out from September 19th though October 10th, with the S&P 500 falling another -28.3% (phase #2), thus bringing the full initial drop to -41.3%.

2 The bounce

Do you remember the great bull market of October 10th, 2008? No? How about the bull market of October 27th through November 4th, 2008? Still no? I understand–it was more than a decade ago. Well, you surely remember the Thanksgiving Day bull market rally of November 20th thru January 6th, 2009 - It was a huge +24.7% movement. Right–I don’t remember any of them, either. All three of these periods are perfect examples of where we find ourselves today, and that is on step #2, the Bounce.

3 The re-test

Historically, a significant amount of bear markets experience a “re-test” of market lows before finally advancing to a longer period of broad recovery. In many cases, these “re-tests” often exceed the levels seen in Stage #1, the initial fall.

4 The recovery

The road to recovery for the last 5 most significant drawdowns Post World War II, (defined here as a drawdown greater than 30%), has been significantly quicker than the historical averages of the last 185 years.

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