Defining Bull and Bear Markets

A reader asks:

I have heard Ben mention several times recently that we are in year 15 of a bull market. He obviously refers to the end of the GFC in 2009 as the start of the current market cycle. Didn’t we have two bear markets in 2020 and 2022 (defined as -20% from high)? When you had Tom Lee last year (TCAF) he said 2024 would be year 2 of a bull, so he has a different definition. Please explain what people in the financial community use to define the end/beginning of cyclical markets?

Here’s the chart in question from a recent blog post:

Has the 2009 bull market reset in 2020 or 2022? Or should we continue as we did with the crash of 1987 during that great market?

The problem is that these things are not exactly scientific.

There are some loosely accepted definitions, but you have secular bull and bear markets as well as cyclical bull and bear markets. Things can get murky since dDifferent investors have different rules when it comes to hitting the reset button and starting over.

A standard definition is a loss of 20% or more means the beginning of a bear market and the end of a bull market, at least on a cyclical basis.

Yardeni Research publishes some useful historical charts for the bull and bear market¹ going back to the 1920s. Here is the table of the bull market:

And bear markets:

You can see that there are a lot of bull and bear markets.

Here is a chart we created that allows you to visualize these cycles:

It is important to recognize that using this 20% definition puts many of these bear and bear markets in the cyclical stage.

The problem is that many of them were just countertrend rallies or dips in the context of a broader long-term uptrend or downtrend.

For example, there was a cyclical bull market from late 1929 to early 1930 when stocks rose ~50%. The crash of the Great Depression didn’t technically hit until 1932. Nobody looks back at that dead cat as a bull market. It was a minor reprieve during a massive recession.

The 1987 crash was the other way around. No one really believes that the bull market of the 1980s ended in 1987. That was a counter-trend crash, but the bull market charged higher for many years after that.

The Covid crash was our 1987 moment. And the bear market of 2022 was ordinary, not a huge financial crisis that altered the secular uptrend.

Take a look at my version of secular bull and bear markets:

So while there have been over 20 cyclical bull and bear markets over the past 100 years or so, there have really only been six longer-term secular periods.

The extended secular bull market from 1942-1965 is a good example of why you can’t end a long-term bull market just because the stock was in a technical bear market. During that time frame, the S&P 500 is up nearly 13% after accounting for inflation, but there have been setbacks along the way.

Number four bear markets:

• 1946 -26.6%
• 1948-1949 -20.6%
• 1957 -20.7%
• 1961-1962 -28.0%

There is a difference between a bear market and a crash.

There have also been a handful of 19% and change corrections over time. Number four since the mid-1970s — in 1976-1978 (-19.4%), 1990 (-19.9%), 2011 (-19.4%) and 2018 (-19.8%). If we are generous, we could collect them. It’s not like a 20% loss feels worse than a 19% loss.

The only big difference between the current round and previous versions is that this secular bull market started right at the base of a rocking bear market, which was not the case in previous bull runs.

The stock market bottomed out in 1932, but the bull market didn’t begin until 1942.

The stock market bottomed out in 1974, but the bull market didn’t start until 1982.

This time, the stock market bottomed out in 2009 and the bull market began immediately. There was no sideways movement following the Great Financial Crisis, just a gigantic V-shaped recovery.

What has changed?

Basically now we get fired bazookas by the government and the Fed. Monetary and fiscal policy are used during financial crises on a scale we have never seen before. During the Great Depression, the Fed and the government made matters worse by tightening Fed spending and policy.

We have learned our lessons from the past.

I’m not saying we can’t have extended bear markets anymore. We can and we will.

But the addition of fiscal and monetary stimulus during the worst recessions means that snapbacks are likely to come faster than they have in the past (assuming the stimulus doesn’t disappear).

Is this whole conversation a bit semantic?

Yes.

But so does most historical stock market conversations, because markets don’t work like physics. Most of the time we can only define these things by the facts.

And that makes them interesting to argue.

There are no scientific relationships in the markets, so we have to make things up as we go.

We discussed this question in the latest edition of Ask the Compound:



Nick Maggiulli joined me on the show this week to address questions about investing in total stock market index funds, how to value your retirement, factors that allow you to take on more risk in your portfolio, and when to sell your big winners .

Further reading:
An epic bull market

¹It’s worth noting that these are price returns only, with no dividends included.