Investors can be lulled into a sense of security.
Bull markets, during which stock prices are climbing, tend to last a while. Dating back to the 1960s, the average bull market for the S&P 500 has run 59 months, posting a whopping average gain of 165 per cent, according to S&P Global Market Intelligence. The numbers aren’t quite as extreme in Canada, but it’s a similar sense of protracted euphoria. The average Canadian bull market, as measured by the total return of the S&P/TSX Composite Index, has lasted for just over three years, according to Russell Investments of Toronto. During those expansion periods, Canadian stocks more than doubled in value, on average.
Canadian bull and bear markets
Total return of S&P/TSX Composite index, 1957 to end of 2021
Bull
Bear
Neutral
250%
200
150
100
50
0
-50
the globe and mail, source: russell investments
Canadian bull and bear markets
Total return of S&P/TSX Composite index, 1957 to end of 2021
Bull
Bear
Neutral
250%
200
150
100
50
0
-50
the globe and mail, source: russell investments
Canadian bull and bear markets
Total return of S&P/TSX Composite index, 1957 to end of 2021
Bull
Bear
Neutral
250%
200
150
100
50
0
-50
the globe and mail, source: russell investments
The good times have certainly come to an end. U.S. stocks recently plunged into a bear market, which is generally defined as a decline of more than 20 per cent from a recent peak. Canadian stocks haven’t fallen quite so far – at least yet. (As of Thursday’s close, the TSX Composite has dropped 14 per cent from its peak in March.) Bear markets are relatively brief, but also painful. Since the 1960s, the average S&P 500 bear market has lasted 13 months, with an average decline of 35 per cent. The figures are nearly identical for Canada.
Stocks are swooning as central bankers aggressively raise interest rates to tamp down inflation, which is running at multidecade highs in advanced economies. Among investors, the worry is that central banks won’t achieve a “soft landing,” in which they bring inflation under control, but without sending the economy into a recession. Shortly after rate-raising cycles, the United States usually experiences an economic downturn. The odds of the U.S. entering a recession by early 2024 are now higher than 70 per cent, according to an estimate from Bloomberg Economics.
Much like equities, the bond market has been quite volatile of late. Bond yields, which move inversely to prices, have surged to their highest levels in more than a decade. In turn, fixed-rate mortgages – which are priced off the bond market – are rising quickly, making it tougher to finance a home purchase.
So, what if you purchased stocks at the worst time imaginable: the bull market peak? How long could it take to see a full recovery?
Past experiences vary widely. The equity recovery from COVID-19 was swift, thanks in large part to ample stimulus programs that bolstered household finances. But in other cases, it’s taken years for major stock indices to claw back lost ground. For instance, after the global financial crisis started in 2007, it took 1,376 trading days for the S&P 500 to surpass its previous peak. After the dot-com crash of 2000, it took even longer: 1,803 trading days, or more than seven years. Investors may want to buckle in for a long ride.
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Matt Lundy