- S&P 500 briefly entered “bear market” territory on Monday – but then rallied
- NASDAQ Composite is still down by more than a fifth from its late-2024 peak
- The previous dozen bear markets in the S&P 500 shaved more than a third off the index and took around a year to play out
- Two-thirds of the average fall has occurred during the final one-third of the bear market’s duration – so value-hunters will be on the look-out for signs of capitulation
“The thirteen modern-day ‘bull markets’ in America’s headline S&P 500 stock market index may have given way to the thirteenth ‘bear market,’ as defined by a one-fifth drop from the peak, although the benchmark has started to try and scramble to safety,” says AJ Bell investment director Russ Mould.
“The good news is that bear markets tend to be much shorter than bull ones, even if they can be undeniably brutish and nasty and laden with traps which lure in the unwary before their work is done.
“The S&P 500’s rally on Monday takes it out of bear market territory, but the technology-laden NASDAQ Composite has fallen by 23% from its December zenith, so the situation remains delicately poised, especially as share prices seem to be hanging upon president Trump’s every word on the subject of trade and tariffs.
Source: LSEG Refinitiv data. *As of the close on 7 April 2025
“If markets really do turn turtle, then the average bear market in the S&P 500 since 1950 has lasted 381 days and knocked a third off the value of the index.
“However, it does look like the bigger the prior bull market gain, the bigger the post-party hangover can be.
“The thumping bull market gains of 1990-2000 and 2002-2007 were followed by two shocking bear markets, not least as valuations had become very stretched relative to historic averages.
“As a result, the bear markets of 2000-03 and 2007-09 were much deeper and longer than average, which is something that investors need to ponder in the current circumstances. Bear markets which are driven by recessions and weaker corporate earnings, as they were, tend to be much worse on average, especially when the starting point comes when earnings expectations are high, valuations are high and animal spirits are running – just as they were in the wake of president Trump’s election win in November 2024.
Source: LSEG Refinitiv data
“There could hardly be a bigger contrast to 2011 when the Occupy Wall Street movement was in its pomp. The S&P 500 stood at around 1,200 and no-one cared after the Great Financial Crisis.
Source: LSEG Refinitiv data
“Wind forward to 2024 and chat rooms were buzzing, meme stocks were surging, margin debt was growing, calls for twenty-four-hour, round-the-clock equity trading were loud and a crypto entrepreneur bought an artwork for more than $6 million and then ate it (it was a banana) – all when the S&P 500 was five times higher.
“The UK’s FTSE 100 is down by less than 10% from its end-of-day peak of 8,871 on 3 March, to suggest that the combination of a lower valuation and lower expectations relative to the US market is providing holders of UK stocks with some greater degree of downside protection.
“And it may ultimately be valuation that helps investors draw a line in the sand.
“Jim Rogers noted that, ‘Nearly every time I have strayed from the herd, I have made a lot of money. Wandering away from the action is the way to find the new action.’
“One thing which might just keep investors in check and stop them from piling in straight away is the knowledge that markets do fall hard and fast when bears are in charge. As buyers and optimists panic and throw in the towel, an average bear market has suffered two-thirds of the total peak-to-trough decline in the final one-third of their duration, over the prior twelve bear episodes since 1950.
Source: LSEG Refinitiv data. *As of the close on 7 April 2025
“Such capitulation may be the ‘buy’ signal that contrarians crave.
“Whether they will get it when the S&P 500 trades on 19 times forward earnings for 2025 and 16.5 times for 2026, multiples that are still not cheap by historic standards, remains to be seen – and those valuations assume 14% earnings growth this year and 15% next, assumptions which a trade war or economic slowdown would bring into question.”
Source: Standard & Poor’s data, analysts’ consensus forecasts, company accounts
