Despite its dip on Thursday, the S&P 500 is well above its low point in July, leading some observers to believe that the worst is over for the U.S. benchmark index. Peter Gibson, quantitative strategist at Desjardins Securities, is one of these observers, but he pointed out that the summer rally might last just a few weeks.
"Summer rallies are generally fleeting, and we do not believe that fundamentals have changed sufficiently for the bear market to have ended," he said in a note to clients.
How long with the bear market continue and how low with the S&P 500 sink? He has some answers, using historical numbers. He said that the average bear market lasts about a year and results in a 30 per cent loss and lasts for a year. So far, the S&P 500 has been in a volatile state for less than that, and the losses have been more shallow. Since its near-term high in October, the index fell 22 per cent to its July 15 low.
"However, the averages hide the fact that 40 per cent of previous bears were in the -20 per cent to -22 per cent range, and half were shorter. A severe bear market would typically last for 2½ years with 50 per cent losses, such as in 2000-02."
If you're optimistic, the S&P 500 could join that 40 per cent minority. But with the housing market looking weak, there's little reason to believe that this downturn will be short and sweet.