Historical Expansion Lengths and Bear Market Data Put Long-Term Market Cycles in Focus

New analysis of U.S. market history suggests investors may want to think carefully about how they position themselves ahead of an eventual downturn, even if one isn’t imminent.

According to the National Bureau of Economic Research, American economic expansions between 1945 and 2020 ran about 64 months on average. The current expansion, which started in May 2020, has stretched to roughly 76 months — surpassing that historical benchmark.

Bear markets, typically defined as a drop of 20% or more in a major stock index from a recent peak, have been a recurring feature of market history. Fidelity data shows U.S. equities have slipped into bear territory roughly once every six years over the past 150 years, with a median decline of about 33%. A longer-than-average expansion does not guarantee a downturn is imminent, but long-horizon investors should reasonably expect significant declines at some point.

The analysis arrives as some of the market’s most volatile names continue to test investor nerves. Strategy Inc (MSTR), a bitcoin treasury company that gives holders economic exposure to Bitcoin through a range of securities, saw its shares close at $132.70, down 3.03% from the previous close of $136.85, leaving the application software company with a market capitalization near $52.7 billion. Stocks with heavy ties to digital assets have historically swung harder than broad indexes in both directions, making them a barometer of risk appetite during periods of market stress.

For diversified investors, the historical record underscores a familiar pattern: drawdowns have arrived regularly over the past century and a half, regardless of when the last one occurred. The practical question for households and institutions alike is less about timing the next decline and more about whether their allocations can withstand a multi-month slump without forcing sales at depressed prices.

With the current expansion already beyond the postwar average, market observers will be tracking economic indicators, corporate earnings and Federal Reserve policy for signs of a turning cycle.

What to watch

• Upcoming quarterly earnings reports, including results from high-beta technology names such as Strategy Inc.
• Bitcoin price movements, given their correlation with bitcoin-linked equities like MSTR.
• Macroeconomic data releases that could signal whether the expansion is decelerating.
• Guidance updates from companies heading into the next reporting season.

Source: original release