Lessons from Past Market Cycles
History has always shown us that markets move in cycles of bear phases followed by bull runs. Looking back at major events like the 1973 downturn, the 2000 tech bubble, the 2007 global financial crisis, and the recent 2020 Covid fall, the same pattern repeats.
Bear markets bring deep declines, but what follows is often a much stronger and longer bull market that rewards patient investors.
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Bear Markets Bring Sharp Declines
The chart of past data highlights how severe some of these declines were (see the image below).
The global financial crisis in 2007 wiped out more than 50%. The 2000 tech bubble and the 1973 crash also brought losses close to 50%. More recently, the Covid fall was sharp but short, with markets quickly bouncing back. These painful drops often feel difficult to handle, but they are part of the natural cycle of equity markets.
Bull Markets Last Longer
What makes the story positive is the strength of bull markets that follow. After the 2000 crash, markets doubled. Following the 2007 crisis, the S&P 500 delivered gains of nearly 400%. Even after the Covid crash, investors saw gains of 110% to 120% in just a few years. On average, bear markets last about 14 months with a fall of nearly 38%, while bull markets last close to 70 months. That is five times longer and brings almost five times the returns.
The Power of Patience
The key insight here is that short-term pain often leads to long-term gain. If a bear market brings a 20% fall, the bull market that follows can deliver close to 100% or more. This makes it important not to panic when markets correct. Investors who stay the course often come out stronger when the next cycle begins.
Current Consolidation and Future Gains
In India, markets have been consolidating since late September 2024. Portfolios may be down by 10%, 20%, or even 30%, but this should not discourage investors. The deeper and longer the consolidation, the stronger the next rally can be. Instead of focusing only on the peak-to-trough losses, it is wiser to think about the possible gains that the next bull run could bring.
