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Examining Bear Market Bounces

Examining Bear Market Bounces

March 31, 2020
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The big equity bounce has continued, with the S&P 500 Index up more than 17% from the multi-year lows hit last Monday. The big question on many investors’ minds is could this be a bear market rally? After all, some of the most spectacular short-term bounces took place during bear markets.

According to our friends at Strategas Research Partners, during the 3-year bear market after the tech bubble burst in the early 2000s, the S&P 500 bounced more than 10% different 6 times on the way to falling 49.1%. During the financial crisis when the S&P 500 lost more than 56%, stocks bounced more than 10% three times, with a huge 27% rally in late 2008 eventually faltering. In other words, big bounces are quite normal, even during bear markets.

“The recent bounce has bulls feeling pretty good given how bad they felt just a week ago,” explained LPL Financial Senior Market Strategist Ryan Detrick. “But the reality is many major bottoms over the years tend to see a retest the previous lows, and big moves higher are the hallmark of bear markets.”

As shown in the LPL Chart of the Day, there have been 9 bear markets that officially lost 20% since 1950, and the average maximum bear market bounce during those bear markets was 14.5%. Although we are optimistic that stocks are carving out a major low, it probably won’t be an easy ride and a potential move back to the recent lows can’t be ruled out.

View enlarged chart.

For more of our thoughts on current markets, please listen to the latest Financial Insights Podcast here.

 

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