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Bear market recovery

Let's pretend for a moment that we know the stock markets — after free-falling like one of the Flying Wallendas — have hit bottom. The S&P 500 is ready for a comeback, after sinking to an anemic 667 last week.

How long will it take the S&P to climb back to its October 2007 peak?

9 years

at a 10 percent annualized gain

14 years

at a 6 percent annualized gain

But the markets never respond with such perfect consistency. The historical graph of the S&P resembles Dick Cheney's cardiogram — all wild spikes and crooked lines. It's as volatile as a 5-year-old on a sugar high. In 1933, the year after the worst bear in modern history, the market soared by more than 50 percent. Two out of the next three years also resulted in huge gains. The bears of the mid 1970s and early 2000s ended with similar, though less spectacular, bull runs.

So how close to its peak of 1,576 would the S&P 500 get if the current market mimicked the run-ups that ended those memorable bears?

1,125* if it follows the 1970s trend. Not bad, but the plans for the waterfront retirement home remain on hold.

1,165 if it follows the early 2000s trend. A little better, but keep clipping those coupons.

2,000 if it follows the mid 1930s trend. A new record! Go out and get that BMW. (But you might want to rent it, since another prolonged bear market quickly followed the mid '30s recovery.)



Keep in mind the disclaimer at the bottom of all those financial come-ons: Past performance is not an indication of future gains. And to steal a phrase from investment guru Warren Buffett: Beware of geeks bearing formulas.

Source: Standard & Poor's

* Based on annualized gains in the S&P 500 for 1975-78, 2003-2006, 1933-1936. Returns include reinvested dividends.

Bear market recovery 03/16/09 [Last modified: Monday, March 16, 2009 11:59am]
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