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The Emotional Toll Of Bear Market Rallies

  • June 7, 2022

In our Capitulation or Forced Selling article last month, I wrote about how the extreme sell-off we saw in early May reminded me very much of the big moves in the 2008-2009 bear market where correlations went to 1 and multiple asset classes declined simultaneously. I came across a tweet last week that discussed bear market rallies based on work done by Stansberry Research covering the 2000-2002 and 2007-2009 bear markets. Having invested actively through both those deep bear markets, a comment following the tweet asking about the duration of those bear market rallies caught my attention. I was curious to see what the data could tell us about what we are experiencing in the current bear market.

I decided to download data for the SPY ETF as a proxy for the S&P 500 and computed both the returns of market rallies during those bear markets and the duration of those bear market rallies. You can see the results tabulated below and it was interesting to see how many significant rallies there were during those bear markets and how some of those rallies lasted months. The results would have been obviously different if I had used the Nasdaq for the bear market that followed the bursting of the dot com bubble because the Nasdaq-100 dropped an astounding 78% peak to trough during that bear.

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