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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

How Long Will It Take Stock Market to Recover?: How Will Bear Market Last?

Updated: Jul 28, 2022

How Long Will It Take Stock Market to Recover? How long will the bear market last? When will the downturn be over?

Bridget Sullivan Mermel and John Scherer, both financial planners, turn to data for some answers.

First, they talk through recent research discussed by Seth Stephens-Davidowitz in Don't Trust Your Gut and apply it to the area of the stock market. We remember we had pain, but we don't remember the intensity or the duration. So, asking the question: how long the downturn will last makes sense.

Next, we discuss research we found through FTE by FYI. They pointed us to a Guggenhiem Investment chart showing the average length of downturns. That can really help us understand what has happened in the past.

Last, Bridget and John discuss how they talk with clients about how long it will take for the stock market to recover, and how to live with the uncertainty.

Here are the links: The Seth Stephens-Davidowitz's book, Don't Trust Your Gut

The FYI by FTE article that inspired this show:

Here's Bridget Sullivan Mermel's firm website:

Here's John Scherer's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


Bridget: How long is this market downturn going to last? In this episode, we'll be talking about how long downturns last and how to make the best of it.

Hi. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I’m John Scherer. I have a fee-only financial planning practice in Middleton, Wisconsin. And before we get going with this episode, Bridget, I want to remind viewers to hit that subscribe button. That helps other people find our content online and learn the things that you're going to learn today.

And I'm excited. Speaking of learning things, how long is this downturn going to last? I'm getting ready to take notes from what Bridget tells me 😊 and then be able to make some moves on it, right?

Bridget: Well, first I'm going to just talk about why we don't remember. So I was just reading this book Don't Trust Your Gut by Seth Stephens Davidowitz, and he was detailing, in granular descriptions, including medical procedures, about why we're not good at remembering pain. So we remember we had pain, but we don't remember how intense it was or how long it lasted. I think that's true with market downturns, too. People just remember “I felt bad.” They don't remember how long it lasted or how intense it was. And I think that's absolutely true with the stock market.

John: It's such a great analogy that I think of my sons when they had to get their vaccinations. I've got one boy, and it takes a half hour to give him a shot. And of course, it stings, right? You get the shot and then it's over in 10 seconds, or whatever the deal is. But every time it's so hard. You have that, “Oh, it hurt,” and “this is bad.” And then you have these feelings of anxiety that build up. I think it does relate to, “Hey, we've got high inflation, the markets aren't doing well.” Maybe there's recession and you forget what goes on and how it works. Maybe my memory of it is worse than what the actuality was in some cases.

Bridget: And I think people who think the worst case go to the worst case scenario. This episode was inspired by an email with The Money Guys called FYI by FTE. The acronym lovers 😊. Anyway, they pointed us to a chart that shows each different length of a downturn and how long does it usually take to recover. This chart is put together by Guggenheim, and we'll put a link to it in the show notes. Okay. So it's very interesting because it just gives us the detail. Let me just read this chart for you. We have been down over 20%, so it's about 25% down. And the top of the market was at the beginning of the year.

John: So about six months or so.

Bridget: Six months, yeah. That means we're about six months into it. And according to this chart, if the downturn is over 20%, then it usually takes about a year.

John: The total downturn.

Bridget: Yes, exactly. We've already had six months before we're even filming this so that means we're about halfway through.

John: And I take a little bit of exception. Maybe we're halfway through, if it's a year on average. I mean, sometimes it takes two years, sometimes it takes two months. We had a big downturn and it was only 45 days back in 2020. So as I look at that I think maybe we're about halfway through, which also means maybe we’ve got some more to go. So what's the takeaway for me? Well, don't be surprised and shocked if the market goes down another 5%, 10%, whatever percent in the coming months. That's one of the possibilities. Maybe we're about halfway through, maybe we're starting to turn the corner, maybe we're not. But you go, “Listen, it doesn't last ten years.” It's typically about ten months, that sort of a thing. Maybe a year and a half. Likely we're not going to be having the same conversation five years from now. Maybe five months from now we will. I don't know. We'll see.

Bridget: The other thing I think is that we have to see what news we get. Because the stock market is very sensitive to news. If we have some good news, it'll recover quicker. If we have bad news, it will recover slower.

John: Take notes on that. Good things happen! And again, logical. But what's really interesting about that, I think, is that it’s news. By definition, we don't know what tomorrow's news is. It is my feeling of “Oh, I wish I knew when to call it!” I was teasing you earlier about this, but, hey, if we could call the bottom then we know how to do this. B definition we need to know what's going to happen tomorrow and, of course, none of us know what's going to happen. And when you think about that, just put that together. Markets get driven in large part by news, and news is by definition unknowable. Yet I want to know what the market is going to do. But once I know the future, I can't do that.

So that's why I think these things are so valuable, is to have some perspective, right? And it goes back to that example of getting a shot or remembering pain. I can remember the pain and I do not want to go through more pain. But if I can step back and go, “Wait a minute. Here are some of the facts. Oh, that's right. Getting a shot only lasts for a minute. That's a bummer, but I can live through a minute.” As opposed to overreacting like you do when you're a little kid and you go, “Oh my gosh, this is going to be cutting my arm off.” Wait a minute. No. This is part of the process.

Having some of that separation—although those feelings are legitimate—allows you to ask, “But what have the facts been?” For me, anyway, it helps me to go, “Oh, that's right. Maybe we’ve had a year of this, or maybe we're halfway through, but this is what's happened.” I think that's a really useful tool to help maintain your sanity and maintain your discipline in these times.

Bridget: Well, and I think that we also have to note that this is short term thinking. So we're thinking, how long is the short term pain? And long term, we know that the markets trend up. So we ask, “When are we going to get back on that swing? When are we going to get back on the upswing?” We're not quite sure. So the other thing is that if there's bad news and the markets go down that will extend out how long this goes. But remember, we've already started. So let's say we get some bad news at some month, say December. Whatever! In some month we get bad news. Okay, but then we've already been out some months. So then we're adding on. So when you're looking at the charts, even if it ends up going down over 40%, the average length is 22 months.

John: Yeah. Basically two years, right?

Bridget: Yeah. And then sometimes it goes out further, like a lot further, but there are fewer times that's happened. So the data is a little sketchy. So even if, say, we have something bad happen at the end of the year and the market doesn't recover, okay, but then we've already been out almost a year. Then the next year we can look for another lengthening.

John: But again, it's a short term thing. I really love that this is the long term. This conversation reminds me of when I was in business back in 2007-2009 and the market went down. It was 18 months or better before it hit bottom. That's not even getting to recovery. And then it took four or five years to recover. You think, “Oh, that's a bummer.” Absolutely. But think about this: this was the worst economic event since the Great Depression in the 1920s and 30s. In 70 or 80 years, it is the worst thing that's happened. Yet, in five years, you're kind of back to normal. That doesn't mean it's going to happen again. Who knows what happens?

But you think about how we've got clients all the time who think, “I'm going to be retiring, I can't go through ’07, ’08, ’08 again and again. It's that feeling of “I do not want to see my money go down 40% or whatever.” But then you look at it—and I'll say this to people that I know well enough—"Oh, so you wouldn't want your money to…” And you look at what some of the numbers did and say, “If you were to retire in 2000 today, and this is ’07, ’08, ’09, in ten years you wouldn't want to have twice as much money as you do today?”

Bridget: If you had to put up with the three or four years of having a little less.

John: Right. That brings up one other point I want to bring up in a second here. But, first, when you look at that, you go, “Oh, yeah, that's right.” And again, it doesn't mean it's going to repeat, but you look at some of this history and you go, “Oh, maybe I shouldn't be quite as scared about getting that jab in the arm as having a two-year downturn in the market.” I mean, it's a bummer, don't get me wrong, but it's not a cutting-off-your-arm sort of a thing by looking at some of the history and seeing some of the facts.

The other thing about this, too, is that Bridget and I are both big proponents of having a bond bladder as you get into retirement. If you're working and the market is down, then you're buying things cheaper, and that's fine. It's when you get to retirement and you go, “Golly, where's my money?” And all of your money shouldn't be in the stock market anyway, right? Some of it should be in your pantry in bonds, in cash, in those sorts of things. So when we look at these market downturns it's not, “All of my money has gone down and bonds haven't been doing awesome,” (although that’s safer, less volatile than those other things).

I talk to people all the time about, “Oh, the market’s down so this…” Remember, we've got this pantry, we've got this bond line, we've got this security base that can last for three to five, seven ten, fifteen years. That reminder also gives you the feeling of “Oh, that's right. I don't have to worry about my cash flow. I can have a longer-term time horizon.” What happens in the next three years is immaterial if you've done those things, the fundamentals.

Bridget: Right. When we're looking at clients finances, we're looking at their net worth. I've been going to meetings recently and we're going through everybody’s net worth again. We include both your portfolio and your housing because that's an important part of your net worth, too. For most people, their houses are up and so their whole net worth is kind of staying about the same or maybe going down 10%. But it's not really as bad as they think when they're watching the news and we're hearing horrible news.

Okay, the other thing I want to say is the ray of sunshine in horrible consumer sentiment numbers. So University of Michigan has been surveying consumers since the 40s. They just surveyed consumers and somehow it's the lowest consumer sentiment that they ever have recorded. It sounds kind of crazy.

John: I know you're going to give me a hard time about this because that makes me happy 😊.

Bridget: John is happy! 😊 Everybody is feeling bad and John is happy.

John: And not because I'm sadistic. So really, when you take a look at some of those numbers over time, when consumer sentiment is really high, oftentimes following that, it's this reaction thing. When things are going well, I feel good after the fact they've already gone well, and then they start going badly, and then I feel bad after it's gone bad. Almost acting in opposition to the herd mentality, when consumer sentiment is really high, I tend to be kind of cautious thinking: “okay, this is the time we should do our lifeboat drills and think about what happens when it goes down.”

When I hear consumer sentiments are at the all time low, I realize that herd mentality usually follows. It's not a leading indicator, but it's a trailing. It's like, “Okay, that means the opposite for me.” Again, not a prediction, but I think, “Oh, if sentiment is down, that generally hasn't meant good things coming in the coming years.” So I look at that in this weird way. The herd mentality oftentimes leads people more wrong than right. So I do feel my thinking is sort of a positive as we look at the long term and the planning side of things.

Bridget: So a lot of people are expecting the worst, basically. And the worst usually isn't as bad as the worst.

John: That's right.

Bridget: 😊 What's coming up might be better.

John: That's right!

Bridget: So anyway, I think that's a great time to wrap it up. I'm Bridget Sullivan Mermel, and this is John Scherer. We both have fee-only financial planning practices and we see clients all over the country. I'm in Chicago. John is in Middleton, Wisconsin. And we're members of ACP, or the Alliance of Comprehensive Planners. So if you are interested in finding financial planning, you can let John or me know or you can look for a local advisor on

John: That's right. And don't forget to hit that subscribe button. Until next time.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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