How long will the bear market last?

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Earlier this week, the S&P 500 officially dipped into a bear market territory, defined as a decline of 20% off its recent peak. The broad benchmark of U.S. stock market performance has dropped precipitously in 2022 thanks to a combination of high inflation, rising interest rates and fear of a potential recession.

Now that the bear market has arrived, how long will it last?

UBS highlighted historical data suggesting that the average bear market since World War II endures for 16 months. Given that S&P 500 reached its all-time high of 4,818.62 on Jan. 4, the current bear market has lasted six months so far.

Therefore, the benchmark case would put the endpoint sometime in April of next year. However, bear markets range dramatically in length.

The shortest lasted just over one month (the drop in February and March of 2020, headed into the pandemic). There were three other bear markets since World War II that lasted eight months or fewer.

However, there is precedent for prolonged bear markets as well. The aftermath of the dot-com bubble led to a market slump that lingered for 31 months. There were also longer-than-20-month bear markets in the 1940s, 1970s and 1980s.

Bear markets also differ in the extent of their declines.

By definition, the slide from the peak has to drop more than 20%. However, sometimes the decline does not go much further than this. A drop in 1956/1957 reached just 21.6%, for example. Another one in 1966 bottomed out after a 22.2% retreat.

On average, the typical bear market includes a decline of 35.1%, according to the data spotlighted by UBS. On the high end, the bear market following the financial crisis in 2007 reached 56.8%. Meanwhile, the dot-com collapse topped out at 49.1%.

A 35% drop in the S&P 500 this time around would put the index just below 3,130. For its part, UBS sees a slightly shallower retreat. The firm predicts a 31% decline from the peak, with the S&P 500 reaching 3,300.

For more on how long it will take for Wall Street to recover from the current bear market, see why famed investor Lee Cooperman thinks the S&P 500 won’t return to its recent highs again for “quite some time.”

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