We’re now close to 12 months into this current bear market cycle, arguably longer if you count the start of this cycle as when technology stocks started to correct (remember that was all the way back in mid-2021). This is probably a good point to reflect on the current bear market cycle and try to put it into perspective.

The question every investor is understandably asking themselves is: when will this bear market cycle end? 

Looking at previous bear market cycles in financial markets is helpful here. There have been twelve major down trending market cycles since the end of the Second World War. Taking a simple mean average of the peak-to-trough declines in those bear markets, we find that the average cycle saw a 33% drop in major stock indexes. We also find that the average length of the cycle was 12 months. 

Peak to trough the S&P 500 Index has seen a decline this year of 25%. The Nasdaq Index more than 35%. 

We’re definitely not in a position to call the end of this current bear market cycle simply because its now older and as deep as the average bear market. But, and this is an important ‘but’, we can say with confidence that, to quote Winston Churchill, ‘… it is perhaps, the end of the beginning.’ 

We are seeing areas of the market and specific stocks where valuations are now much more attractive.  In fact in some cases there are quality assets trading at their lowest valuations in history.  However these remain the exception rather than the rule.  This leads us to remain somewhat cautious on the short-term volatility and direction of markets. The current bounce in markets is likely another bear market rally and we could see further tests of lows in the new year. 

Despite this less sanguine view for the short-term, we remain bullish on the long-term outlook for high quality businesses trading on now much more reasonable valuations.  We continue to favor a targeted strategy of averaging in to these investments, rather than attempting to time the bottom of the current market cycle. There will likely be further opportunities into the end of this year and 2023 to add to equities on possible new lows. 

The good news for long-term investors is that, so long as the entry price is attractive and quality of the assets being bought are high, short-term volatility and potential new lows in markets simply offer even better opportunities to add more to these favored investments. 

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