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Recovering from Bear Markets

As investors continue to debate whether the stock market could be near a bottom, data for the last twelve bear markets indicates that, on average, it took the Dow three years to reach its previous highs. Assuming that the last three bear markets could resemble the current economic slowdown, the average jumps to four years.

Identifying the bottom is important because the biggest gains come within the first year of market bottoms -the Dow posted an average gain of 27.82% within one year of the previous bear bottoms.

Birinyi Associates, a stock market research and money management firm, has identified thirteen bear markets since the end of World War II. The average decline for the past twelve bear markets was 28.69%. Based on the lowest close this year, the Dow Jones Industrial Average index is off by 40.34% from its peak of 14,164.53 on October 9, 2007.

The last time the Dow fell more than 40% from its peak was on December 6, 1974, when the index closed at 577.60, down 45.08%. During that period, it took nearly eight years for the Dow to close above its previous peak. The fastest market recovery was during the bear market from 1981 to 1982, when it took sixty-eight days for the Dow to reach its previous peak.

The following table illustrates the values during the past twelve bear markets and how long it took for the Dow to recover.


On average, the Dow gained 38.62% within the first two years of a market bottom. However, the biggest percent gains were made within the first year. As the market recovered, the Dow rose by an average of 28.73% every three months within the first two years of reaching a bottom.

The last time the Dow fell more than 40% from its peak was on December 6, 1974, when the index closed at 577.60, down 45.08%. During that period, it took nearly eight years for the Dow to close above its previous peak. The fastest market recovery was during the bear market from 1981 to 1982, when it took sixty-eight days for the Dow to reach its previous peak.

The following table illustrates the values during the past twelve bear markets and how long it took for the Dow to recover.

Looking at the S&P 500 data going back to the bear market in October 11, 1990, the financial, materials, and consumer discretionary sectors had the biggest percent gains after two years of reaching a market bottom. After a year, the S&P 500 sector rose by an average of 12.89%.