Bear markets are a key part of the market cycle. They provide markets time to return to the mean and get ready for the next bull market.
After two years of a QE-driven uptrend, global markets have run into strong headwinds. We are in a bear market. Not just stocks and crypto, everything seems to be in a downtrend. Bitcoin is down 70% from its high, and stock indices have lost over 20%. In a moment like this where confidence is low, let’s deep dive into the worst bear markets in history and see how people recovered from them!
The Great Depression of 1929
The bear market caused by the Great Depression in 1929 takes the prize for the biggest bear market in history. The stock market crash of September 1929 was the first domino of many, as the crash caused a bank run which triggered a chain reaction of institutions falling over.
All of this sent unemployment rates to a whopping 25% and pushed the stock market down by over 85%. It took the second world war to repair the damage, as it wasn’t until January 1945 that the market fully recovered.
Source: Britannica
The 2007 Financial Crisis
Before the collapse, Lehman Brothers was the fourth biggest investment bank worldwide. The company underwrote over $80 billion in mortgage-backed securities leading up to one of the biggest housing market bubbles in recent history. The lack of background checks allowed people with the lowest creditworthiness to get massive mortgages that they could never afford.
When home prices took a dive, many of these people defaulted on their mortgages — those same mortgages that backed the portfolios of investment banks, like Lehman Brothers. It did not take long for Lehman Brothers to collapse, and the entire economy came crashing down with it. The S&P 500 lost almost half of its value in the following 18 months, while most major economies fell into steep recessions.
Source: BBC News
The Dot-com Bubble
The Dot-com Bubble is another crash that is fresh in the memory of many. In the years leading up to the turn of the decade, investor interest in tech stock was at an all-time high. The sentiment was so positive that people would literally buy anything in that market out of the peer pressure. This went well for many until the internet-frenzy-fuelled Nasdaq came to a grinding halt. The S&P 500 lost over half of its value, and many companies didn’t survive.
The Black Monday (1987)
Black Monday is named in history books as the most violent correction of the Dow Jones. In October 1987, the stock market lost a quarter of its value in a single day. That day was quickly dubbed Black Monday. It took two more months for the market to find its bottom, pushing the value down by an additional 11% in the process. For reference, the Black Monday was twice as intense (percentage-wise) as the reddest day of the covid crash in 2020.
The 1973-1974 Stock Market Crash
Economists had good expectations from the year 1973. Markets saw significant growth in the years before, and nobody expected this to change anytime soon. Even days before the crash, Time Magazine wrote about their view of another year of consistent performance.
In the meantime, global economies entered a recession. In just two years, the U.S. economy saw GDP growth rate fall from a positive figure of 7.1% to a negative figure of -2.1%, while inflation skyrocketed to 12%. Similar effects were felt across the world, causing a slow fall in many major indices. The decline lasted close to 700 days, cutting the value of the S&P 500 in half once again. The United States fell into a period of stagflation, with inflation reaching levels of 25%. It wasn’t until 1993 that American stock markets reached a new all-time high.
The Cyprus Bust (2000-2013)
This bear market takes the trophy for the biggest percentual losses ever. After the Cyprus Stock Exchange printed its peak in November 1999, it entered the most brutal, annihilating bear market in global history. In the five years that followed, it lost 92% of its value.
As if that wasn’t enough, the market went through a multi-year dead cat bounce only to correct another 86%. It found a bottom in October 2013. From the peak in 1999, the market lost a whopping 99.2% of its value. Let’s think about this: a 99.2% correction means that the market lost another 90% of its value after it had already lost 90%! As you can see in the chart below, the Cyprus market never recovered.
Source: Seeking Alpha
Bitcoin’s Third Bear Market (2017)
We mention this one in our list because it is the one that likely hits the closest to home for many of you. After Bitcoin rallied to $20,000, it lost over 60% of its value within a few months. Many hacks, bans and regulatory efforts later, Bitcoin found its bottom in December 2018 at $3,200.
The Shortest Bear Market Ever (2020)
The most recent bear market, caused by the outbreak of coronavirus, was the shortest bear market on record. After the market crashed in early March, it took the stock market just six months to recoup its losses. Since central banks across the globe turned to quantitative easing, this bear market marked the start of a steep bull run, which came to an end after a few months. The end of that bull market brought us to the economic winter we’re currently in.
Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form.
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