Market Performance Since March 9th - Further Bear Market Analysis

On March 9, 2009 the Dow Jones Industrial Average closed at 6547.05.

Today, April 7, 2009 the DJIA closed at 7789.56 - almost 19% higher.

The attached slide meets my criteria for posting on our blog (short and easy to understand) and shows some interesting information about each bear market since 1900.

This slide, courtesy of Wachovia Securities, reinforces many of our previous blogs. In the past, bear markets have been followed by strong returns in the following 12 months. Since WWII, for example, the average return for the DJIA was 29.6% one year following the bear market low.

We believe it is impossible to accurately "pick the bottom", so I do not want to imply that March 9 was the low OR that the next twelve months following a low will behave the same as in the past.

You can't know if it was the low until 12 months later - but here's to hoping it was!

Here is a summary of highlights from the slide:

Measured by the DJIA since 1900, the stock market is currently experiencing its 25th bear market. The accompanying table defines a bear market using the conventional industry definition of a 20% decline from peak to trough. The 1956-1957 decline was included because of the close proximity to the 20% definition.

The 24 completed bear markets had an average decline of -36.7% and an average length of 15.3 months. Post World War II, there have been 11 completed bear markets with an average decline of 29.3% and 13.4 months in length. As of the March 9, 2009 closing level, the current bear market that began in October 2007 has declined -53.8% and lasted 17.2 months.

The summary statistics at the bottom of the table show a slight tendency for bear markets in recent history to decline less and have shorter lengths. We believe this tendency has been because of the explosion of financial information reporting through multiple media sources, most importantly the Internet; information is received and discounted much more quickly now than in the past.

The current bear market now ranks as the second largest decline since 1900, only surpassed by the -86% decline during the Great Depression.

There have been sharp advances following the lows of bear markets. In all 24 completed bears since 1900, the DJIA has an average rise of 41.7% during the next 12 months. The last three bear markets have been followed by a 27.7% advance.

Of course, past performance cannot guarantee future results.

As co-founder of Chappell, Mayfield & Associates, Cass offers expertise in financial planning, wealth accumulation, retirement planning, insurance planning, business continuation planning, and employee benefits. Cass launched his financial planning career as an agent for Prudential Financial in 1996, and later, a manager in the company's financial services division. Since then, Cass has earned the CFP®, CLU, and ChFC designations, reflecting his commitment to excellence in investment decision-making and financial planning. He also holds a B.S. in Management from Georgia Tech. Cass has lived in Atlanta since 1992 and is married to Alison.

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