The Investment Scientist

Bear Market Stock Discounts: Size and Days

Posted on: May 22, 2022

I am writing this article one hour before today’s market close. If there are no surprises, the S&P 500 will end the day in a bear market, meaning the index is giving us a 20% discount  from its peak. As a comparison, the Nasdaq is already giving us a 30% discount. 

As savvy investors, many of my clients and readers want to know: will the discount get deeper? And how long will the discount last? Well, like I always say, nobody can predict the future, but we surely can learn from history. That’s why I have done a study of all twelve bear markets since 1950. The table below illustrates my findings:

Here are my observations:

The average bear market lasts for 342 days and results in a discount of 33%. In conventional terms, it has taken, on average, nearly one year for the S&P 500 to completely go back to its previous high.  

The two highlighted rows signify bear markets during the hyperinflation periods that correspond more closely to our current environment. Note that the discount is deeper at 37%, and it took longer, one year and eight months, to fully recover. Bear markets happen fairly regularly, on average, every five years. It’s not too bad of a deal to get some discounts every five years.

This is not shown on the table, but half of the S&P 500’s strongest rallies happened during bear markets, before a full-blown bull market began. If you are in your wealth-building phase, you should love the bear market discount: the bigger and longer the better, so that you can accumulate more productive assets cheaply.

If you are in the wealth spending phase, a bear market discount does hurt you somewhat. However, if history is any indication, the market has always recovered within two years.

Schedule a 2nd opinion financial review, buy my wealth mgmt books on Amazon.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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