Thread by @canemacro

1/11 Every Bear Market Since 1950
#stocks $SPY #bearmarket
In this thread:
Shocks, Cycles, and Structural Bear Markets
What is the 2022 bear market like?
Is this bear market over or will it get worse?

2/ Shock bear markets are caused by unpredictable events that are not directly related to #economic circumstances. They are very short, lasting less than 90 days, and very deep, historically below -30%. They recover very quickly.

3/ Cyclical bear markets are "normal" bear markets. Some are associated with cyclical #recessions. They are shallow, with bottoms between -20% and -30%. They are short-lived, ranging from two to eight months.

4/ As a rule of thumb, the recovery time is twice the bear market duration. Cyclical bear markets are corrections to excess demand and typically occur during macroeconomic expansions.

5/ Structural bear markets reflect dysfunction in the #economy. They are always associated with #recessions. They last years and losses are typically -40% to -50%. Recovery time is also measured in years.

5/ Structural bear markets occur either before or after periods of macroeconomic stagnation and decline, marking a transition to a new #economic stage. Three were associated with #energy crises. Related research: "When to Own #Stocks and When to Own #Gold" papers.ssrn.com/sol3/papers.cf…

6/ These bear markets crush even skilled #investors because there are several small rallies, each of which appears to create a bottom.

7/ Recovery does not begin until the underlying #economic structural problems are resolved, which often takes the coordinated efforts of #government and the private sector.

8/ Statistically, the 2022 bear market is most like 1961-62 and 1973-74. The correlations between 2022 and the two comparisons are 81% and 83% respectively.

9/ If this is a short-term, cyclical bear market then the bottom is in and recovery has started. If this is a long-term structural bear market then the market faces months or years of volatility and gradual decline.