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Bears versus Bulls

April 12, 2021

Posted in Economics

Just over one year ago, a new bull market was born. March 2020 marked both the end of the longest bull market in modern history spanning 11 years and the shortest bear market in history lasting just 33 days. While there is no official definition of a bull or bear market, the generally accepted definition is when equity prices rise or fall 20% respectively. 

Today’s bull market began when the S&P 500 hit its low point on March 23, 2020, falling 34% in record time. This was officially confirmed on August 18 when the S&P 500 rose above its previous high-water mark set in February:

While these most recent bull and bear markets set records for their respective durations, they reflect the historical truth that bull markets typically last much longer than bear markets. According to Capital Group, the average market expansion since 1950 has lasted 71 months and the average bear market just 14 – this is welcome news to most investors.

While equity markets closed the first quarter of 2021 at record highs, history also tells us to expect some potentially extended periods of volatility throughout bull markets, regardless of how long they ultimately last. Since 1950, 5% drops in the market occurred 3 times per year and 10% drops once per year on average. Larger drops of 15% and a bear market of 20% were less frequent.

If history holds true, it may be a while before we experience our next bear market. But we know even smaller market declines can be painful to experience. It is important to have a financial plan in which you are confident so you can weather these inevitable bouts of volatility, regardless of their severity and length. The upside is you are able to fully participate when traditionally shorter bear markets transition into longer lasting bull markets.

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