Monday, January 21, 2008

Bear Markets and Recessions

by Bill McBride on 1/21/2008 12:48:00 PM

UPDATE: Same graph for DOW added back to Great Depression.

Here is a look back at previous recessions and bear markets.

The following graph shows the change from the three year daily high and the monthly close. Not all market declines are associated with recessions. As an example, there was a sharp market decline in 1987 and also in 1998 (the Asian financial crisis).

When looking at this graph, monthly closes within 5% of so of the three year high usually indicates the market was setting new three year highs.

S&P 500 Bear Markets Click on graph for larger image.

Note: the probable 2007/2008 recession is shown starting in December 2007.

Using the monthly close doesn't capture the entire down move - but it does capture most of it (the change is from the daily high) - but my graphics package won't handle any more data!

Here is a table of the recession related down moves:

Recession YearMarket Correction
1953-12.5%
1957-19.4%
1960-12.1%
1970-33.5%
1974-47.8%
1980-15.8%
1982-24.6%
1990-17.8%
2000-47.4%
2008-15.9% (through last friday)
Median (previous 9 recessions)-19.4%
Average-25.6%

All recessions are different, but based on the S&P futures, it appears the current decline will be close to the median decline tomorrow.

DOW Bear Markets
Here is the same chart for the DOW (I used four year max to capture entire Depression decline). I'd ignore the WWII period.