Liz Ann Sonders, chief strategist for Charles Schwab, outlines the four phases of the stock market over a full market cycle. Since 1960, the market can be seen following the four distinct periods: recession bear, post-recession bull, echo bear and post-echo bull.
- Recession Bear: these are the big bear markets, usually lasting a few years and averaging declines of 30%. The 2007-2009 bear market, as Sonders points out, fell by 54% so that was a much larger loss than after.
- Post Recession Bull: this is the immediate 1-2 years following the bear market. There tends to be a large snapback after the preceding bear market and stocks, on average, return 65% during this period.
- Echo Bear: As Sonders says, “this phase is the pause that refreshes”. These periods are “described as severe corrections; largely thanks to the absence of economic recessions.”
- Post-Echo Bull: following the Echo Bear is the Post Echo Bull, which on average sees stocks increase 72% over a much longer period of time. The most recent Post-Echo Bull took place from Oct. 2011 to May 2015.
Sonders concludes that while it’s never a complete certainty, the likelihood is we will continue in the current Post-Echo Bull phase baring an economic recession. The chart below from Ned Davis shows these four phases over the full cycle.
