Unfortunately, there is no straightforward answer to this question but what we could do is to look at historical market downturns to gain some perspective on the matter.
Some history of recent bear markets
The last bear market lasted for only 33 days, from mid-February to late March 2020, mainly due to the shock from the COVID-19 outbreak (see chart below).
It was the shortest bear market on record.
Meanwhile, if we look at the most recent sustained bear market during the Global Financial Crisis (GFC) in 2007, it lasted for 17 months and resulted in a decline of 56.8% for the S&P 500 Index from its highs.
Another sustained bear market that we can look at was in the early 2000s when the dot-com bubble hit the market. The dot-com bubble burst turned out to be the longest bear market since the 1950s, lasting nearly three years.
As for the most infamous bear market, that was during the Great Depression era back in the 1930s, resulting in a total market decline of more than 80%.
If we look at the average time of bear markets since 1926, a typical one would last between nine to 10 months with an average decline of about 35%.
What is driving the current bear market?
The current S&P 500 selloff appears to be driven by two factors: stubbornly high inflation due to supply chain disruptions and high oil prices amid Russia-Ukraine war.
There is also the aggressive interest rate hikes embarked on by the US Federal Reserve (Fed) to fight inflation.
This is similar to the bear market that we saw back in 1980 when the Fed’s chairman at that time, Paul Volcker, pushed for a series of historic rate hikes to battle inflation.
The bear market at that time lasted for 622 days, where the S&P 500 was down by 27.1%.
Yesterday, the US Fed announced a 75 basis point (bp) increase in interest rates, the largest hike since 1994.
The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%.
History indicates bear markets could last less than two years
It is impossible to time the market, but history indicates that the current bear market could last less than two years.
This is based on the average bear market period as well as the similarities of the current bear market and those that we have seen in the past.
As the 1980s bear market lasted for about 20 months, I expect to see a similar time frame although given the lower rate hikes in the current cycle, the impact might not be as severe as what we saw in the 1980s.
It is, however, difficult to draw an exact comparison as the Fed is also reducing its US$8.9 trillion balance sheet currently. This is seen as the Fed’s second tool to curb rising inflation.
The Fed is likely aiming for a “soft landing” for the US economy but investors should also pay attention to rising geopolitical tensions, risk of deglobalisation and potential stagflation.
Assuming a 50-year investment horizon, you are likely to face seven to eight bear markets.
While it is difficult to watch the declines in your portfolio, it is important to remember that even the worst bear market during the Great Depression was a temporary part of the process.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.