Figure 1. How Most Investors Feel At Different Points Of A Market Cycle

What has been so challenging about this market is the ferociousness of the move down. It took 31 months for the S&P 500 to retrace 49.1% during the 2000-2002 bear market. The current market has already slightly exceeded that decline in magnitude, but it did so in just 13 months (see Figure 2).

Figure 2. The Recent Bear Market Losses Have Occurred Much Qucker Than 2000-2002 (S&P 500)

With this sharp downward spiral, stocks have and remain massively oversold on some measures. The S&P 500 is roughly 40% below its average price over the past 200-days (see Figure 3). Typically, just like a rubber-band that gets stretched too far, one could expect some type of reversal, or reversion to the mean. Going back as far as 1928, the only other time the S&P 500 was more extended on this metric was in 1932, which eventually led to a sharp snapback, though, there was no way to know from what level or time the potential reversal would develop.

Figure 3. S&P 500: Most Oversold Since 1932 (% Current Price Below 200-Day Moving Average)

Tactica Capital management recently reviewed nine recession-induced bear markets and rebounds since 1929. Tactica focused its analysis on recession-induced markets "since it is likely that the U.S. is now in a recession and bear markets triggered by recessions (e.g., 1973/1974) are deeper and longer than bear markets triggered by market crisis (e.g., October 1987 or August 1998)."

Tactica found the average recession-induced bear market lasted 21 months and showed an average decline of 41%. This work also showed the recovery phases after the eventual low was also typically very powerful as shown in Figure 4. To be fair, if a market goes down 50%, it has to go up 100% to get an investor back to breakeven.

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