Financial planner shares historical facts about bear-cession markets

Leon LaBrecque, managing partner and founder of LJPR, LLC, a firm managing over $300 million in assets, points out that we've had 13 bear markets (including our current one) since 1926, and 15 recessions (including our current one). There have been 9 bear-cessions.

Below are some of his observations about eight prior bear-cessions:

  • The average length of the recession part of the bear-cession was 14 months;
  • The average length of the bear part of the bear-cession was 23 months;
  • The bear market always preceded the recession, and did so on an average of 7 months;
  • With two exceptions, the bear market ended before the recession. When the bear ended before the recession, it usually did so about 4 months before the recession ended.
  • The average decline in the bear part of the bear-cession (on the S&P 500), was -39%;
  • The average 1-yr return on the S&P 500 after the trough of the bear was +46%;
  • In 3 of the 4 most recent recessions (excluding this one), the date the recession was declared was either after or near the end of the recession.

So, let's look at the bear-cession of 2008:

  • The market peak was 10/09/2007, so as of December '08, we're 14 months into the bear market;
  • This recession hasn't had a formally declared start date, but it probably started around November 2007 (The date 11/16/2007 has been bandied about)
  • If the recession part is leaning to the average, the recession should be ending 4 months after the bear market ends, or about 14 months from the start (April 2009?)
  • After the trough in the market, the market should recover reasonably. If the trough is 8,000 on the Dow, the recovery would be to about 11,200 by June of 2010.

The Big Nasty: LaBrecque says the one bear-cession we'd certainly like to ignore is October 1929 to July of 1932 (recession went to March of 1933). This is the Grizzly of all bears, with an 86% market decline and a 34 month bear market. The recession lasted 42 months. The resulting one-year stock market recovery was 124% (which sounds good, but isn't, off of an 86% decline. He says the Great Depression was an example of what NOT to do in a bear-cession (like raise interest rates, tighten credit, and pass tariffs, plus generally ignore the malaise). LaBrecque points out that if we toss out the Big Nasty from the prior observations, the average bear market was 20 months, the average recession was 9 months (3 quarters). He observes that we've effectively moved away from Great Depression mistakes, with lower oil prices, lower interest rates and smarter government.

All in all, he believes the bear-cession of 2008-2009 is more than half over. That is, if history continues to repeat itself.

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