Why Today's Market Rebound Speed Is Changing Investment Strategies Forever
The market takes the stairs up and the elevator down.
It's an old Wall Street adage, and the idea is simple: Bull markets tend to grind higher slowly and steadily, while bear markets arrive suddenly and violently, wiping out gains in a fraction of the time.
The Great Recession bear market, for instance, took the S&P 500 down by more than 50% in 17 months between October 2007 and March 2009. After the market bottomed, it took four years to get back to the prior highs.
But in today's market environment, that old saying feels outdated.
In fact, recent history suggests something closer to the opposite dynamic. Instead of prolonged recoveries after sharp declines, the market has shown a remarkable tendency to snap back quickly, taking the elevator both down and up.
The most obvious example is the COVID-19 crash of 2020. In late February and March of that year, global markets experienced one of the fastest declines in history. The S&P 500 fell roughly 34% in just over a month as the pandemic triggered widespread economic shutdowns and uncertainty.
But what followed defied the traditional script. Instead of a slow, stair-step recovery that might take years (as we saw after the 2008 financial crisis), the market bottomed in March of 2020 and began an aggressive rally almost immediately. By August 2020, just about five months later, the S&P 500 had already reclaimed its previous highs.
The 2022 bear market followed a similar (if more drawn-out) process. That year, persistent inflation, rapid interest rate hikes, and geopolitical tensions pushed equities into a prolonged decline. From peak to trough, the S&P 500 fell roughly 25% over the course of 10 months.
The market bottomed in October 2022 and began climbing into 2023 with surprising strength. By mid-2023, major indices had regained most of their losses, and by January 2024, the S&P 500 had fully recovered and moved to new highs.
A 10-month bear market was effectively reversed by the first 14 months of a new bull market.
And we've seen this phenomenon play out in the last few years as well (and with more compressed timelines), as the two-month "Liberation Day" sell-off that brought the indexes to the cusp of a new bear market last year was completely reversed by a three-month rally.
Most recently, the Iran War-induced correction was undone by a snap-back rally that saw the Nasdaq flip from oversold to overbought in a record-setting 11 days.
That rally has pushed the S&P 500 and Nasdaq to new all-time highs (although the Dow is lagging).
For a myriad of reasons (algorithmic trading, passive investment flows, the expectation of Central Bank policy support, etc.), investors have been conditioned to "buy the dip."
And it's worked.
That's not to say that markets have stopped taking the elevator down - the sell-offs I mentioned above were definitely of the "elevator down" variety.
But recoveries have largely become V-shaped, and investors should position themselves with the expectation that recoveries will continue taking that shape.
At some point, buying the dip won't work. We'll hit another 10-month bear market, only this time the recovery will be a grind.
Or a bubble popping somewhere will drag down the headline indexes, and investors won't have the dry powder to deploy.
But the last 15 years have shown a character change in the market, and it makes being early even more important.
It's not just about being early to recoveries; the market-moving trends are no longer driven by slow discovery and gradual changes in investor perception. Instead, investors are rapidly piling into new trends and themes as soon as they get an ounce of momentum.
And if you're looking for help spotting those moves while they're still in their early stages, consider a subscription to Cabot Early Opportunities, where Chief Analyst Tyler Laundon excels at getting his subscribers into new trends before the crowd.
This week, Tyler has a special discounted offer for his advisory, and you can learn more about it here.
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