As the second-longest bull market in history makes its way into its ninth year, many investors are understandably asking: When will it end? We’d all be rich if there was a foolproof way to figure that out. But we can make some educated guesses.
One thing to remember is that bull markets don’t die of old age alone. Something’s got to kill them. And the surest weapon is a recession. That’s not always the case. There have been bear markets without a recession, as the crash of 1987 shows. But many of the worst downturns have been accompanied by a recession – or, more accurately, followed by one. The Great Recession that began in December 2007 was preceded by the start of a bear market in October of that year that went on to lop 57% off stock prices. The recession that began in March 2001 followed a March 2000 market peak that initiated a 49% stock decline.
False alarms are frequent, says economist and market strategist Ed Yardeni, of Yardeni Research. “The next bear market will start when the market anticipates the next recession – and turns out to be correct. The market has anticipated lots of recessions since 2008 that have turned out to be buying opportunities,” says Yardeni.
When recessions do pair with stock market peaks, they can do so immediately, as with the concurrent start of the recession and bear market of July 1990, or they can lollygag more than a year behind. On average, recessions begin 7.7 months following a stock market peak, according to market research firm InvesTech Research.