By Simon Maierhofer
From top to bottom, the S&P 500 Index has fallen 35% in this bear market. Here are the two most common questions I receive in my inbox: Is the bear market over? If it is not, can there be a bear market rally?
In my humble opinion, the bear market may already be over, and I explain why here .
Even if the bear market is not over, how big of a bear market rally, historically, can be expected?
In terms of historic parallels, the 2020 air-pocket drop is unprecedented. Here is a chart that shows why.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.97% peaked 34 days ago. The chart above plots the Dow’s last 34 days against the first 34 days of the bear markets starting in 1929, 1987 and 2008. In terms of speed, the 2020 drop is simply unmatched.
For a longer-term perspective, the chart below compares the entire 1929, 1987, 2008 bear markets with the 2020 air-pocket drop. The length of each period’s decline (and subsequent recovery) is based on the 1929-1932 bear market, which lasted 846 days (from top to bottom).
As the red boxes outline, each bear market had a pronounced “crash phase,” which usually happened several weeks or months after the peak. The 2020 drop went straight into crash mode.
Perhaps the best “apples-to-apples” comparison is between the crash phases of 1929, 1987, 2008 and the 2020 drop.
The 1929 crash’s bounce
The crash phase of 1929 lasted from Oct. 10-29, which was followed by a bounce that retraced 36% of the crash-phase losses. The bounce, however, relapsed once more before the Dow staged a five-month 50% rally (which also gave way to further losses).
The 1987 crash’s bounce
The crash phase of 1987 lasted from Oct. 2-19. The first bounce retraced 28% of the prior crash-phase losses. Although there was a retest of the Oct. 19 low, and initial gains were slow and choppy, the Dow never closed below the Oct. 19 low again.