Today, the S&P 500 hit a new peak closing of 3,389.78 marking the U.S. stock market recovery from the 2020 COVID Bear Market.
This 2020 COVID Bear Market was 33 days from peak to relative bottom and 148 days from relative bottom to new high. For many investors it tested their nerve and their risk tolerance. Congratulations to those of you who stayed the course!
A Bear Market is defined as an index dropping at least 20% from some previous high. Smaller drops in the market between 10% and 20% are called “corrections” while larger drops of at least 50% are called “crashes.”
Since 1950, there have been exactly 10 Bear Markets in the S&P 500 Price Index (the most common representation of “the market”). Only one of these turned into a stock market crash. The other nine stopped dropping before the loss from peak to bottom was greater than 50%.
Although you might think that only ten Bear Markets over 70 years makes its occurrence uncommon, each bear market lasts about 3.3 years from peak to bottom and back to full recovery. In fact, the S&P 500 spends 18.19% of the time with losses of 20% or greater from some previous high. That means that, on average, 66 days of each year the S&P 500 Price Index is down more than 20% from some previous high.
Even though it spends so much time down, the stock market still trends upward and is a powerful financial asset for those wise enough to remain invested and diversified during all kinds of economic movements.
On February 19, 2020, the S&P 500 reached a new peak closing at 3,386.15. Six trading days later the S&P 500 closed down -12.03% from its prior peak as a correction, and by Thursday, March 12, the S&P 500 closed down -26.74%, entering the definition of a Bear Market. For the next ten days, its price continued down. By Monday, March 23, the S&P 500 reached a relative bottom at 2,237.40, down -33.92% from its prior peak. Then, it started its a modest recovery.
After the March 23 relative bottom, the S&P 500 closed out the quarter on March 31 at 2,584.59, up 15.52% in those 8 days but down -23.67% since the February 19 high.
April continued to show gains and by Tuesday, April 14, the S&P 500 had recovered 52.98% of its bear market losses, closing at 2,846.06, up 27.20% from the March 23 bottom and down only -15.95% from its February 19 high.
The gains didn’t stay though as the price bounced below that level, then up over it again, and then below it again in the weeks after. During this time, many market timers attempted to “sell the bounce” (an unwise market timing strategy).
The dip didn’t hold for long though. Ten days later on Friday, April 24, the S&P 500 closed above the halfway point again at 2,836.74, which is 52.17% of its bear market losses recovered. Then, over the weekend of May 26, the S&P 500 crossed the 3,000 threshold opening at 3,004.08 and drifting upward from there in the days to come.
Over the next several months, every time the S&P 500 approached its old high, many investors lost their nerve and sold. Likely driven by loss aversion, many investors were attempting to lock their asset value in at the relative high before escaping the markets out of fear. Other investors openly discussed whether they should sell before a supposed second drop came. Luckily though as many investors were fleeing stocks as were joining, causing the market price to flutter up and down in the 3,100 range for weeks.
On Monday, June 8th, the S&P 500 grew teasingly close to a new high — closing at 3,232.39, 86.62% of the way recovered, 44.47% up from the relative bottom, and only -4.54% down from the last high — before falling again. For the rest of June and into July, the price bounced between 3,000 and 3,200.
Then at the end of July the price swelled surprisingly close to a new high again. By July 15, the S&P 500 closed at 3,226.56, 86.11% of the way recovered. On July 21, the market opened at 3,268.52, a promising beginning, but the market simply maintained a similar value.
By August, the S&P 500 was trading in the upper 3,200s and on August 4, it closed at 3,306.51, only -2.35% below its last peak closing. On August 5, the market opened up at 3,317.37 and then saw more gains throughout the day closing at 3,327.77. August 6 closed at 3,349.16. August 10 closed at 3,360.47. August 11 soared even higher cresting at 3,381.01 midday, but closed at 3,333.67.
Then on August 12 at 3:16 PM, the S&P 500 hit a new intraday high of 3,386.23 and continued upward peaking at 3,387.89 before drifting back down to close at 3,380.35, 99.50% of the way recovered. For the rest of the week, prices hovered near new highs but consistently closed below its old record. By August 17, it closed 99.64% at 3,382. And then on August 18, it finally hit a new peak closing.
This new high of 3,389.78 represents a 0.11% gain from the previous February 19 peak closing of 3,386.15 and a 51.51% gain from the March 23 relative bottom of 2,237.40.
From relative bottom to new high was 148 days (almost 5 months), and from prior high to new high closing was 181 days (almost 6 months).
Those who flat-lined to cash or who waited to invest their cash until the markets looked better missed out on the recovery.
The market trends upward. It has bear markets, recessions, and crashes along the way, but it still trends upward. It crosses its new highs more than once heading both directions, but it still trends upward. The longer the time period you look at, the less drops there seem to be. In the long-run, these dramatic dips are but V’s in the mountain chart. Stay the course. Rebalance. Don’t peek. You will be okay.
Photo by Dave Hoefler on Unsplash