But maybe not this time. At that level the index would be right about 50% above the March trading low of 666 plus change. And that means distraught investors who panicked out of their stock allocations will have missed not only a very big move, but much of the entire gain from a typical bull market.
Over roughly the past 60 to 65 years, depending on whose number-crunchers you use, bull markets gained an average of about 135% to 150% from the preceding bear market bottom. (These averages are pumped up at least 35 percentage points by a whopping 430% to 580% gain for the monster bull of the '90s, depending on whether said number-crunchers crunch 1990 as a brief bear market or a minor dip in a bull starting in late 1987.)
But missing the first 50% of an eventual 140% gain doesn't mean you still get a 90% gain. Nope. The math is simply unforgiving. You get more like 60% because you came in at a higher price. So you end up taking nearly all the pain of the bear but missing nearly half the gain of the bull .
Spreadsheet brainiacs might also note that a typical bull gain would send the market above its old highs, but not by much. Which opens wide the possibility of continuing the current pattern of decade-long flat equity returns for anyone who regrettably compounded their troubles by buying high.
For investors living on their portfolios (or planning to) the 'low sweat' antidote for uncertainty is stocks with rising dividends. They'll hand you more spending cash year after year, whether the market is sinking, soaring or sideways, so you can stick with your equities even when you're stuck with a mean market.
For more bull vs. bear brain-wrestling, see "Cat on a Cold Stove" (posted here July 23, 2009). For a look at the impact of dividend cuts, see "Two Pounds of Chopped Livin'" (July 21, 2009).
Background links:
http://fc.standardandpoors.com/srl/srl_v35/library_article.jsp?tid=7113
http://bespokeinvest.typepad.com/bespoke/bespoke_reference/
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