Here’s the long answer. First, let’s agree to use the common definition of a bear market—a 20% (or more) decline in a broad index over an extended period of time. By that definition, we were in a bear market from October 10, 2007 until March 9, 2009. Between those dates, the market, as measured by the Dow Jones Industrial Average, fell from 14,165 to 6,547 over 17 months, a loss of 54%.
Along the way, there were several short periods when the market reversed course and went up for awhile. But each of them proved to be temporary breaks, and the primary downward trend soon resumed. The interruptions, in retrospect, were bear-market rallies (or sucker rallies, or dead-cat bounces, or secondary trends—there are various names).
In fact, by late 2008, this bear market’s length became so long, and its magnitude so great, that it began to match up with historical statistics regarding the average length of all bear markets, the longest bear markets, the largest percentage drops during bear markets, and the like. That increased the temptation of some to call the end of the bear market at the first sign of an upturn.
Late last year, there were two interruptions in the bear market that caused some pundits to declare that the bear market was over. The most recent began on November 20, 2008, when the Dow closed at 7552. From there, it went irregularly upwards for about six weeks to close at 9015 on January 6, 2009, a 19% rise. There were lots of declarations that the long bear market was over. There were also many doubters.
The doubters were right. From its high on January 6, the Dow turned back around and marched relentlessly downward until March 9, when it closed at 6547. That’s 13% below the supposed bottom on November 20. The bear market was still on. Those who had called the bottom were wrong.
Now we have another opportunity to question whether the bear market is over. Since March 9, the market has marched steadily upwards, finishing on Friday, April 3, at 7278. That’s an 11% increase over four weeks. For the month of March, the Dow rose almost 8%, its biggest monthly gain since October 2002, which turned out to be the start of the last bull market.
Was March 9 THE low? Is the bear market over?
There is absolutely no way to tell. Here’s some historical perspective from the Great Depression. There were five short, sharp rallies between 1929 and 1932:
11/13/29 - 04/17/30 (5 months): Dow 199 to 294, +48%
12/29/30 - 02/24/31 (2 months): Dow 160 to 194, +21%
06/02/31 - 07/03/31 (1 month): Dow 121 to 155, +28%
10/05/31 - 11/09/31 (1 month): Dow 86 to 117, +36%
01/05/32 - 03/08/32 (2 months): 71 to 89, +25%
Note that only one of these rallies (the first) lasted as long as five months. The rest were one or two months long. Even the five-month rally did not signal the end of the bear market. From the beginning of the first rally to the end of the last, the Dow fell from 199 to 89, a drop of 55% despite the five upturns. The Dow would eventually plunge to its 20th-Century low of 41 on July 8, 1932.
A lot depends on what time frame you choose to determine when one kind of market ends and another begins. For example, some would argue that the five-month rally shown above was itself a true bull market. After all, it was five months long and the market went up 48%. What more do you want?
What it comes down to, I think, is where you fall on the scale between short-term trader and long-term holder of stocks. A skillful day trader really doesn’t care about long-term trends. They feel they can make money on very short-term trends in either direction.
At the other end of the scale, a buy-and-holder does not want to trade very often. They do best with “secular” markets, that is, those whose primary trend lasts for a decade or more. By this reckoning, we have been in a bear market since the end of the dot-com bubble on January 14, 2000, when the Dow hit 11,723. Investors who measure this way would not count the five year run-up from October, 2002 to October, 2007 as a secular bull market. It was too short, despite the Dow’s reaching an all-time high of 14,169 on October 9, 2007, a 94% increase from its low of 7286 on October 9, 2002.
Most of us fall somewhere between these two extremes. We are not day traders, but we pay enough attention and are willing to trade often enough that we would certainly count the 2002 – 2007 run-up as a bull market. It was, for us, “investable.” That word signifies our individual comfort zone: A market (or an ETF or individual stock) is “investable” if it keeps going generally in one direction long enough that we are comfortable trading within that timeframe to take advantage of the trend. For most of us, a 94% increase over five years is investable.
Back to the original question: Did the bear market that began in October, 2007 end on March 9, 2009? Can’t answer that one for you. If a timeframe less than four weeks is an investable time period for you, you may already be back in the game. If four weeks is the exact minimum you will accept as potentially signifying a turn from a bear market to a bull, you might start creeping back into the market now. If you require a longer uptrend to conclude that the market has turned, we’re still in a bear market.
By the way, remember that the stock market is a leading indicator. So the question whether the bear market is over is not answered by referring to how bad the economy is right now. The economy is always bad when a bull market starts, which is generally six to nine months before economic statistics show that a recovery is under way.
