As described here, I have projections suggesting that the bull market in U.S. stocks will last at least until the end of this year, with the latest target in mid-2018. But, what should we expect after that? It’s virtually impossible to say specifically, but I would expect a bear market taking the form of a downtrend or sideways period lasting at least 2 years, and it could quite possibly last around 5 years. The bear market would have a drop of at least 25% if historical precedent applies.
The definition of a “bear market” varies widely depending on who you are talking to. In my case, for my historical analysis, I consider a bear market to be a period in which the market has two or more downward moves separated by rallies that fail to make a substantial new high, and the whole pattern is not occurring as part of an obvious Elliott Wave bull market.
I should also note that I do not subscribe to the idea that all market history and human history fit into Elliott Wave patterns of infinitely large degree. I personally only use Elliott Wave in the context of individual bull and bear markets, and I treat them as stand-alone patterns. I don’t believe in grand supercycles. Furthermore, there are market periods that do not really conform to Elliott Wave patterns at all in my opinion.
Looking back over the past century, here are the periods that I consider to be “bear markets” on the Dow Jones Industrials Average:
1899-1921 (I am excluding this from the stats below given that for most of this period, there was no Federal Reserve)
So, we have an average bear market length of 6 years, and a median length of 5 years. In terms of nominal percentage drop, the mildest bear market was 1946-1949, which was a 25% drop. The most severe was 1929-1932, which had a drop of nearly 90%.
In nominal terms, the average and median bear market drops were 50%, using intraday values.
In inflation-adjusted terms, the average and median bear market drops were roughly 54%, using monthly closing prices.
For those statistics, if a bear market was a sideways period (like 1966-1982 nominal), I used the percentage drop of highest high to the lowest low during that period (for instance, 1973-1974).
All of those bear markets were, to some degree, associated with recessions.
Here are the nominal and inflation-adjusted historical Dow charts:
chart from freestockcharts.com
chart from macrotrends.net