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Market Bottom: Historical Norms May Not Apply

"Has the stock market bottomed?" you ask. Good question, but you confuse the issue by raising the topic of historical recessions. The recession call by the NBER will be based on GDP and related statistics that have evolved in methodology over the decades since the organization was founded in 1920.

Consider, for example, that the eight-month recession during the 2001-2002 bear market ended in November 2001, according to the NBER, with the S&P 500 at 1,084.10. The index didn't bottom out until the following October at 776.76. That's a further decline of 28%.

A more productive approach to the question of when the current bear market will end is to examine previous bottoming processes. The key word is "process". Rather than a sudden single event, the bottom is better understood as a process over a period of weeks or months. An overview of the eight completed S&P 500 bear markets since 1950 reveals this bottoming process that lasted anywhere from six weeks to eight months:

dshort.com/charts/bear...

In four of these bear markets, the first low in the process was the actual bottom. In three, it was the final low. In the triple bottom of the most recently competed bear, the trough came in the middle. The process ranged in length from six weeks to eight months. There is no clear correlation between the depth of the decline and the length of the bottoming process. Likewise, the overall length of the bear market doesn't reliably predict the amount of time spent bouncing around the bottom.