These days, all investors want to know how long and how bad the decline will be. Neither I nor anyone else can answer that question definitively, though history provides some guidance, explains Richard Moroney, blue chip stock expert and editor of Dow Theory Forecasts.
➤ Bear markets on average last roughly 12 to 15 months and decline approximately 33% from the peak. Of course, not all bear markets are the same. I expect this downdraft will fall on the shorter end of the range. While there is likely further downside ahead, I sense that the majority of the damage has already occurred.
Indeed, the latest reading on our Intermediate Potential Risk Indicator is just 5% of the stocks on the New York Stock Exchange trading above their 200-day moving average. The reading has been lower only one time in the last 30 years — in November 2008 through March 2009, when the financial-crisis-fueled bear market was laying a bottom.
➤ One key element of a market bottom is stocks remaining resilient in the face of negative news. Unfortunately, with every daily news cycle, it seems the declines build. For a market to form a bottom, stocks must stop going down on bad news.
Whether the market is bottoming will be tested over the next six weeks as we learn more about the spread of the coronavirus, as well as hear from corporate America beginning in mid-April on the impact of the virus on corporate profits.
➤ Remember that going into this crisis, the three primary engines of sustained market moves — corporate profits, interest rates, and inflation — were bullish, the average stock was not outlandishly valued, and economy and employment numbers were still positive. Those factors should help facilitate a quicker and more robust rebound once the recovery happens — and it will happen.
➤ There has never been a bear market that didn’t recover, and that streak won’t end. Most investors, even those near or in retirement, have an investment time horizon adequate to recoup bear-market losses, based on historical recovery periods.