It's useful to test longer-term rules, such as trend-following, across many cycles. To this end, it is useful to have dates for bull and bear markets. If your sample is merely from, say, 2010-2019, you will have 2520 data points, but no bear markets. Thus, you can prove such a strategy works by noting the significance level of your statistics, but anyone with some knowledge of history would see the error. A strategy optimized over only bull markets is, as they say, 'problematic.' The US stock market has been in bear markets 20% of the time since 1871.
I have identified 24 US bear markets since 1873. I'd like to say it is a purely objective classification, but there are some judgment calls. Basically, I looked for the traditional "20% drawdown" definition. Several bear markets did not actually meet this standard--1990, 1957, 1873--but I included them anyway out of respect for history. For example, the 'Panic of 1873' occurred in the midst of European turmoil, started when the US and many other nations demonetized silver, was the first wave of railroad failures, had many bank failures, and even caused a 10-day closure of the New York Stock Exchange. The recession from 1873-77 was the longest in US history.
On the other hand, there were some that perhaps are false positives. The 1884 bear market was only down 2% in real terms, though 21% nominally. This bear market is referred to as the 'panic of 1884.' As the US just returned to the gold standard in 1879, many Europeans were skeptical the US could maintain it and were selling their US assets. Many businesses and banks failed. To say this was not a bear market because in real terms the markets were virtually flat seems wrong.
I put in the prior bull market gain to give better context. It also explains why I have 2 bear markets from 1937-42 as opposed to one, as some have. Given the 68% increase from March 1938 through October 1939, and that the cause of the '37 slide is so different than the '39 slide, it does not make sense to consider the entire '37-'42 period a single bear market.
I used Shiller's data for data prior to 1926, and Ken French's data for afterward. Shiller's data is monthly, and this tends to soften cycles, avoiding the true peaks and troughs. Shiller's data is a little funky, as for example, his 2020 February return is flat while the SP500 was down 8%. These discrepancies tend to leak over to other months, however, so for measuring bull and bear market returns they are probably less problematic.
While not perfect, it's useful to have these dates, at least for a starting point. If you have suggestions on amendments, I would appreciate them. You can download this here.
Corrections thus far: 3/12/20 should be 3/23/20 (Elfenbein)
| Start | End | Decline | Prior Rise | Months | Comments |
|---|---|---|---|---|---|
| Feb-1873 | Nov-1873 | -18% | #N/A | 10 | Left silver, failure of Jay Cooke, railroads, Europe weak |
| Mar-1876 | Jun-1877 | -33% | 32% | 16 | End of longest recession |
| Sep-1882 | Jan-1885 | -21% | 198% | 29 | Foreign run on US assets due to worry about US gold standard |
| Jan-1893 | Aug-1893 | -25% | 89% | 8 | Failure of railroads, banks |
| Sep-1895 | Aug-1896 | -19% | 34% | 12 | Double dip from last recession |
| Sep-1902 | Oct-1903 | -26% | 194% | 14 | Minor recession |
| Oct-1906 | Nov-1907 | -32% | 76% | 14 | A run on Knickerbocker Trust , JPMorgan leads bailout |
| Nov-1916 | Dec-1917 | -28% | 160% | 26 | Start of inflation, US entered WW1 |
| Oct-1919 | Aug-1921 | -23% | 60% | 23 | Prices fall by 50% after rising 100% in war |
| 9/7/29 | 2/27/33 | -84% | 635% | 43 | Great Depression |
| 3/6/37 | 3/31/38 | -51% | 416% | 14 | Short-lived massive retained earnings tax |
| 10/25/39 | 4/28/42 | -31% | 68% | 31 | Start of WW2 |
| 5/29/46 | 6/6/47 | -24% | 237% | 13 | End of war transition |
| 8/2/56 | 10/22/57 | -17% | 421% | 16 | Minor recession |
| 12/12/61 | 6/26/62 | -28% | 122% | 7 | Kennedy micro-manages steel price increases |
| 2/9/66 | 10/7/66 | -21% | 101% | 9 | Fed tightens, relents |
| 11/29/68 | 5/26/70 | -37% | 71% | 19 | Collapse of merger wave, tech boom |
| 1/11/73 | 10/3/74 | -48% | 88% | 22 | OPEC oil crisis |
| 11/28/80 | 8/12/82 | -20% | 246% | 21 | Peak inflation, Volker Fed tightening |
| 8/25/87 | 12/4/87 | -33% | 281% | 4 | Fed tightens to support dollar, market crash |
| 1/2/90 | 10/11/90 | -18% | 71% | 10 | Run-up to Iraq War I, junk bond & Comm RE bust |
| 3/24/00 | 10/9/02 | -50% | 575% | 31 | Collapse of tech bubble/911 attack |
| 10/9/07 | 3/9/09 | -55% | 131% | 18 | Mortgage crisis |
| 2/19/20 | 3/23/20 | -34% | 535% | 2 | Covid |
1 comment:
I've been looking at this since Ben Carlson posted his at Top 10 Drawdowns, posted on Mar 18 2020. The first peak on the list was Sep 1929 - Jun 1932, and the most recent Oct 2007 - Mar 2009.
I noticed the same thing as you. The average days between peak and trough for those 10 is 446 days. For this latest drawdown, it is 33 days (Feb 19 - Mar 23).
Part of me thinks that we won't see another bear market for several years, but the rest of me thinks that we might take out this low with something lower in the coming year. I have more cash on the sidelines than I probably should, but I'm older now and I am sleeping well. My long term portfolio is also long only, and I'm a little under 40% invested. My short term portfolio is slightly beta negative, but I am fully invested in that one.
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