What Happens After a Bear Market?Christopher Briggs, RRC®, Wealth Advisor
We have encountered many new situations in response to COVID-19 — isolation, physical distancing, economic closures globally, and others — that have created uncertainties for the short term. Doomsayers cite these factors, and others, to suggest that this time is different and the current economic downturn will somehow last forever. However, economic cycles go up as well as down.
Equity markets are also cyclical. Bear markets happen from time to time. Yet, even in the worst situations, equity markets have eventually turned their course. The worst bear markets in history have seen drawdowns of over -86 percent (1932) and -56 percent (2007). Yet, the average returns following some of the worst bear markets were 53 percent, 78 percent, and 143 percent over the ensuing one, three, and five year periods, respectively. Although the positive returns came after the depths of the bear markets, history reminds us that time can heal even the worst market declines.
Forward Returns Following History’s Worst Bear Markets, S&P 500
Nobody knows the direction of the equity markets over the near term, but the long-term trend has been up. In preparation, a disciplined approach emphasizing quality, diversification, and a solid financial plan are expected to continue to serve us well over the longer term.