How long does it take the FTSE 100 to recover from a bear market?

Russ Mould
18 March 2020

•    Four previous FTSE 100 bear markets lasting on average 497 days
•    We are currently 60 days into the index’s fifth bear market
•    Average time it took the FTSE 100 to recover to its pre bear market high was 1,765 days

“The FTSE 100 is now mired in the fifth bear market of its history, with a 33% drop from the post-election peak reached in mid-January and contrarian investors could be forgiven for wondering whether the gathering panic means this is a good time to step in,” says Russ Mould, AJ Bell investment director. “After all, the current decline compares to the average 40% drop witnessed across the 1987, 1998, 2000-03 and 2007-09 bear episodes and it has been a particularly brutal downturn, as we are just 60 calendar days in and the damage is already substantial.

FTSE 100 bear markets since the index’s launch in 1984

Start

Finish

Duration (days)

Start

Finish

Decline

16-Jul-87

09-Nov-87

116

2,443

1,565

(35.9%)

20-Jul-98

05-Oct-98

77

6,179

4,649

(24.8%)

31-Dec-99

12-Mar-03

1,167

6,930

3,287

(52.6%)

15-Jun-07

03-Mar-09

627

6,732

3,512

(47.8%)

Average

 

497

 

 

(40.3%)

 

 

 

 

 

 

17-Jan-20

17-Mar-20*

60

7,675

5,138

(33.1%)

Source: Refinitiv data. *2020 bear market to date

“The good news is that on all four prior occasions, the FTSE 100 succeeded in regaining the ground lost during the preceding bear market. This might not sound like much of an achievement, but any investor with experience of, and exposure to, the Japanese stock market will tell you otherwise: the Nikkei 225 peaked at 38,916 on 31 December 1989 and 31 years later it stands at 17,012.

“The bad news is that on three of the four occasions, it took the UK’s leading index longer to make up the ground than it did to lose it. Some of this is mathematics, since if an index halves, it has to double to get back to where it started. But the size of the hangover can also relate to the excess of the prior party, since the 2000-03 bear followed a monster run from 1987 (only briefly interrupted by 1998’s stumble) and 2007-09 followed another large and rapid gain.

 

FTSE 100 recoveries from bear markets since the index’s launch in 1984

Prior bull gain

Bear market

Duration (days)

Loss

Ended

Start point regained

Days taken to regain

144.3%

1987

116

(35.9%)

09-Nov-87

02-Jan-90

785

294.8%

1998

77

(24.8%)

05-Oct-98

24-Feb-99

142

49.1%

2000-03

1,167

(52.6%)

12-Mar-03

24-Feb-15

4,367

104.8%

2007-09

627

(47.8%)

03-Mar-09

31-Dec-13

1,764

 

 

 

 

 

Average

1,765

 

 

 

 

 

 

 

118.5%

2020-??

60

(33.1%)

??

??

??

Source: Refinitiv data. *2020 bear market to date

“The worst news of all is that the FTSE 100 is currently trying to cling on to the 5,000 mark – and that means it trades below both the 1999 and 2007 peaks once more. 

“Investors will be hoping that 1998’s nasty, brutish and short bear market, caused by a currency crisis in Asia then dislocation in financial markets that followed Russia’s debt default, is the model this time. That was a temporary blip, and one where a Federal Reserve co-ordinated bail-out of the humbled LTCM hedge fund helped to bring calm.

“There are three dangers this time which mean 1998 might not be replayed.

•    The Fed has fewer tools left with which to offer support 
•    Global indebtedness is so much higher and the financial system potentially less stable, especially after a third huge bull run in barely 20 years
•    The actual hit from the COVID-19 outbreak to Western economic activity and corporate profitability is far greater than that delivered by the Asian and Russian debt crises on 22 years ago

“The counter-argument is that Governments’ fiscal response will ultimately prove so substantial, and the economic impact of the viral outbreak and self-isolation lockdown sufficiently fleeting, for a rapid recovery in corporate profits and confidence to ensue very quickly.”

[APPENDIX] How long does it take the FTSE All-Share to recover from a bear market?

“The FTSE All-Share started trading in 1962, so it has a much longer history than the FTSE 100, which launched in 1984. As such it offers a larger sample of bear markets – and subsequent recoveries – for students of stock market history to analyse.

FTSE All-Share bear markets since the index’s launch in 1962

Start

Finish

Duration (days)

Start

Finish

Decline

31-Jan-69

27-May-70

481

181

114

(37.0%)

15-Aug-72

06-Jan-75

874

226

62

(72.6%)

06-Jun-75

08-Aug-75

63

154

122

(20.8%)

03-May-76

20-Oct-76

170

172

116

(32.6%)

07-May-79

15-Nov-79

192

284

220

(22.5%)

17-Aug-81

28-Sep-81

42

339

266

(21.5%)

16-Jul-87

10-Nov-87

117

1,239

785

(36.6%)

08-Jun-98

08-Oct-98

122

2,868

2,178

(24.1%)

31-Dec-99

12-Mar-03

1167

3,242

1,593

(50.9%)

25-Jun-07

03-Mar-09

617

3,479

1,789

(48.6%)

Average

 

385

 

 

(36.7%)

 

 

 

 

 

 

17-Jan-20*

17-Mar-20*

60

4,258

2,828

(33.6%)

Source: Refinitiv data. *2020 bear market to date

“The good news is that, like the FTSE 100, the FTSE All-Share has always completely recaptured the ground lost during the previous bear market. 

“The bad news is that on eight of ten occasions, it took the All-Share index longer to make up the ground than it did to lose it. 

FTSE 100 recoveries from bear markets since the index’s launch in 1962

Prior bull gain

Bear market

Duration (days)

Loss

Ended

Start point regained

Days taken to regain

81.0%

1969-1970

481

(37.0%)

27-May-70

20-Jul-71

419

98.2%

1972-75

874

(72.6%)

06-Jan-75

14-Sep-77

982

148.4%

1975

63

(20.8%)

08-Aug-75

05-Nov-75

89

41.0%

1976

170

(32.6%)

20-Oct-76

03-Feb-77

106

144.8%

1979

192

(22.5%)

15-Nov-79

16-Jul-80

244

54.1%

1981

42

(21.5%)

28-Sep-81

10-May-82

224

365.8%

1987

117

(36.6%)

10-Nov-87

29-Jul-91

1,357

265.4%

1998

122

(24.1%)

08-Oct-98

24-Feb-99

139

48.9%

2000-03

1,167

(50.9%)

12-Mar-03

03-Jan-07

1,393

118.4%

2007-09

617

(48.6%)

03-Mar-09

10-May-13

1,529

 

 

 

 

 

Average

648

 

 

 

 

 

 

 

138.0%

2020-??

60

(33.6%)

??

??

??

Source: Refinitiv data. *2020 bear market to date

“The average time it has taken the All-Share to fully recover a bear-market loss is 648 days, compared to the 385-day average market downturn. 

“There is, however, a wide range. It took the benchmark just 89 days to bounce back from its 63-day, 21% pummelling in 1975. But it needed 1,529 days to pick itself up after the crunching 2007-09 downturn which featured the Great Financial Crisis and a 49% peak-to-trough decline.

“As with the FTSE 100, it can be argued that the longer the preceding bull market and the bigger the gain, the longer the recovery period that is needed. The hangover that followed the 1998-99 and 2003-07 parties suggests as such, although the bear market of 1987 was very, very short and that was sandwiched in between the huge advances of 1981-87 and 1987-98.

“We have just had a long upward run, so the omens may not be good, especially if a recession hits now, if history is any guide. But a brief downturn could be followed by a rapid uptick in corporate profits and economic activity to potentially provide a springboard for a rebound in share prices, especially after such a rapid collapse in market valuations.”

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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