On March 9, 2009, the economic news of the day was about as terrible as it could get. The S&P 500 was down almost -60% from its 2007 peak, and the U.S. jobs report that came out just three days before—on March 6, 2009—painted a very bleak picture.1
Employers had shed 651,000 jobs in February 2009, with job losses across nearly every major industry in the U.S. February’s job losses brought the 4-month total of layoffs to 2.6 million, bringing the total number of unemployed Americans to 12.5 million. The unemployment rate rose from 7.6% to 8.1%.2
The economic picture was bad and all signs pointed to more pain, which is exactly what happened. The unemployment rate kept rising throughout 2009 and would eventually cross 10% in the fall, with well over 15 million Americans out of work. As you can see in the chart below, new jobless claims would stay elevated throughout the year. The labor-force participation rate would also fall throughout the year, as many people gave up looking for a new job. It was one of the more challenging economic times in history.
Jobless Claims in 2008 and 2009
For many people, early 2009 probably felt like an awful time to be an investor. But the opposite turned out to be true. Three days after the ugly February 2009 jobs report, with many more months of rising job losses still left to go, the bear market officially ended. In this case, as in just about every other in history, positioning for a market rebound meant being invested when everything looked and felt its worst.
There is no clear formula for what will ultimately constitute the ‘worst’ of the economic cycle or the bottom of the bear market. If we look historically at valuations, interest rates, inflation, unemployment, etc., there are no distinct levels or patterns that have indicated a bottom every time. Bond yields have been rising when a bear market ends, but they have also been falling. Valuations have sometimes fallen back to previous cycle lows, but not always. The only factor that has been consistent throughout history is that bear markets end when news is bad.
In the current environment, the bad news has been coming in the form of elevated inflation readings and rapidly rising interest rates. In the not-too-distant future, in my view, we are likely to see a precipitous drop in job openings and perhaps more layoffs, falling earnings estimates (which is already happening), and a rising likelihood of confirmation that the U.S. is in recession. This is all bad news that has not happened yet, but if/when it does, investors should see it as a contra-indicator to get positioned for the bear market to end and the new bull to begin.
Bottom Line for Investors
Being positioned for the market rebound in March 2009 meant having the opportunity to participate in the +451.3% gains over 10.8 years that U.S. stocks would deliver (S&P 500). It is rarely easy—in the early days of the new bull market, the news will be bad and market commentators will routinely call it another bear market rally. Investors should expect to see and hear this negativity in this cycle, too.
If you are having a hard time being patient amidst the negativity, just remember what’s potentially at stake in the handoff between bear and bull markets. From 1942-present, the average bear market lasted approximately 11.1 months with an average magnitude of -31.7%. Over the same time period, however, the average bull market lasted 4.4 years with an average magnitude of +155.7%. Bull markets are longer and stronger than bear markets.
1 A Wealth of Common Sense. October 16, 2022. https://awealthofcommonsense.com/2022/10/what-a-stock-market-bottom-looks-like/
2 Bureau of Labor Statistics. February 2009. https://www.bls.gov/news.release/archives/empsit_03062009.pdf
3 Fred Economic Data. October 20, 2022. https://fred.stlouisfed.org/series/ICSA#
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