Pardon the interruptionIf you read the Wall Street Journal and similar publications for long enough—40 years and counting for me—you will have been exposed to the lore surrounding the “bear market rally.”
Everyone pretty much agrees that stocks don’t move in a straight line. That applies to bear markets as well as bull markets. Therefore, in the case of any decline, no matter how deep the eventual fall, there will be interruptions along the way: aka the bear market rally, where stocks reverse course and go up for a while, before resuming their decline.
Lore holds that bear market rallies are sharp, steep, vertiginous in their climb. And brief.
Before taking up the bond market here in the 2020s, here are some examples of bear market rallies taken from the Mother of All Bear Markets, the decline following 1929, where stocks did not bottom out until they had fallen 85% to 90% in nominal terms (depending on index and periodicity).
The first bottom in the Dow-Jones index after the Crash of 1929 occurred in mid-November 1929, a plunge of 48% in just two-and-a-half months. A scorching bear market rally over the following five months lifted the Dow off that bottom by 48% through mid-April 1930. (See https://www.macrotrends.net/2484/dow-jo ... ear-market for a graphical representation.)
We all know how that worked out. By early June 1931, the Dow had plunged a further 59% from that bear rally peak; after which, the next bear market rally commenced, lifting the Dow by 29% over just 22 trading days. Was the Great Crash finally over after almost two years?
Alas, no. Over the next three months the Dow fell by 45% from that late June peak; and October 1931 was still not the bottom. After nine more months, and another 50%+ decline, punctuated by rallies of course, the bottom (for the Dow) was finally reached in summer 1932.
Except, no one could know at the time that July 1932 was the nadir. There was indeed a great rally over the next two months, with the Dow up 94% from the July low; whereupon it stalled. The macroeconomic crisis of the 1930s was still not over.
Had summer 1932 turned out to be just the latest and greatest in a series of bear market rallies? No contemporary could be sure; and it must have been agony to watch the Dow drop by 37% over the ensuing six months, until finally Roosevelt took office in March 1933 with a plan and a mandate, and the stock market never looked back, up an astonishing 117% in the four-and-a-half months that followed.
- I know you you know this, but to avoid confusion on another thread where we just discussed this piece of history, the August 1929 investor did not "sustainably" reclaim his 1929 high until May 1949 (inflation adjusted, dividends reinvested)
Statistics: Posted by CraigTester — Tue Apr 30, 2024 11:28 pm
