Are You Ready for the Next Bull Market?

Over the past year, rampant inflation has called into question the strength of the economy, and that has triggered a sharp decline in the stock market. In fact, the broad-based S&P 500 had its worst first half since 1970, and the index crossed into bear market territory in the second quarter.

The S&P 500 has since rebounded slightly -- it sat 17% off its high on Sept. 12 -- but the bear market is not technically over until the index surpasses its previous high. For context, the S&P 500 last peaked at 4,797 on Jan. 3, 2022. That was 253 days ago at the time this article was written.

Many investors are probably wondering how much longer the downturn will last. Here's what you should know.

Image source: Getty Images.

How long do bear markets last?

The S&P 500 has fallen into correction territory 26 times in the last five decades, meaning the market falls 10% or more about once every 1.9 years. Bear markets are more severe market corrections. The S&P 500 has dropped into a bear market seven times in the last five decades, meaning the market falls 20% or more about once every 7.1 years.

For bear markets in the last 50 years, the chart below shows the start date, trough date, peak loss, and the number of days it took the S&P 500 to reach a bottom. Of course, the bear market that started earlier this year is not included because the S&P 500 may yet fall further.

Data source: Yardeni.

Clearly, bear markets vary wildly in terms of duration and severity. But historical data can still provide meaningful insight into the current situation. Specifically, the S&P 500 fell 41.4% on average during bear markets over the last five decades, and it took an average of 472 days to reach a bottom. In other words, if the current bear market falls exactly in line with the average, the S&P 500 is still 219 days away from the bottom.

To build a complete picture of past market cycles, investors should also consider the bull markets over the past five decades. The chart below shows the start date (note that these are the same as the trough dates listed above), peak date, peak gain, and the number of days it took the S&P 500 to reach a top.

Data source: Yardeni.

Based on the data above, the S&P 500 rose 258.8% on average during bull markets over the last five decades, and it took an average of 2,510 days to reach a top. In other words, bull markets run higher and last longer than bear markets. For that reason, bull markets have always wiped away all losses incurred by the S&P 500 during bear markets.

How can you prepare for the next bull market?

The most important thing any investor can do to prepare for the next bull market is to maintain a long-term mindset. Ignore the day-to-day noise and focus instead on the big picture. The worst mistake an investor can make is trying to time market cycles.

Consider the following data from JPMorgan Chase: If you had invested $10,000 in the S&P 500 at the beginning of 2002, that sum would have grown 517% to $61,685 by the end of 2021. But if you had missed the 10 best days during that time -- just 10 days -- that initial sum would have grown just 183% to $28,260 by the end of 2021. And guess what? Six of the 10 best days during that time period actually occurred during a bear market, and two of the remaining four days actually took place on the day following a bear market's bottom.

In other words, the stock market's best days often take place during a bear market, and missing just a few of those days can do tremendous damage to your portfolio. That means the best way to prepare for a bull market is to stay invested through any downturn. Better yet, investors should continue to buy high-quality stocks on a regular basis.