Wednesday, December 02, 2020

Dates of US Bear Markets Since 1873

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)

StartEndDeclinePrior RiseMonthsComments
Feb-1873Nov-1873-18%#N/A10Left silver, failure of Jay Cooke, railroads, Europe weak
Mar-1876Jun-1877-33%32%16End of longest recession
Sep-1882Jan-1885-21%198%29Foreign run on US assets due to worry about US gold standard
Jan-1893Aug-1893-25%89%8Failure of railroads, banks
Sep-1895Aug-1896-19%34%12Double dip from last recession
Sep-1902Oct-1903-26%194%14Minor recession
Oct-1906Nov-1907-32%76%14A run on Knickerbocker Trust , JPMorgan leads bailout
Nov-1916Dec-1917-28%160%26Start of inflation, US entered WW1
Oct-1919Aug-1921-23%60%23Prices fall by 50% after rising 100% in war
9/7/292/27/33-84%635%43Great Depression
3/6/373/31/38-51%416%14Short-lived massive retained earnings tax
10/25/394/28/42-31%68%31Start of WW2
5/29/466/6/47-24%237%13End of war transition
8/2/5610/22/57-17%421%16Minor recession
12/12/616/26/62-28%122%7Kennedy micro-manages steel price increases
2/9/6610/7/66-21%101%9Fed tightens, relents
11/29/685/26/70-37%71%19Collapse of merger wave, tech boom
1/11/7310/3/74-48%88%22OPEC oil crisis
11/28/808/12/82-20%246%21Peak inflation, Volker Fed tightening
8/25/8712/4/87-33%281%4Fed tightens to support dollar, market crash
1/2/9010/11/90-18%71%10Run-up to Iraq War I, junk bond & Comm RE bust
3/24/0010/9/02-50%575%31Collapse of tech bubble/911 attack
10/9/073/9/09-55%131%18Mortgage crisis