History Of 'near' Bear Markets Bodes Well For This Current Stock Comeback - CNBC

That Stock Rebound Has History Whispering Sweet Nothings in Its Ear

Okay, let’s talk about this stock market comeback. You know the one. After that stomach-churning slide that had everyone nervously checking their portfolios every five minutes (admit it, you did), things are looking perkier. Green arrows! Upward trends! CNBC anchors sounding slightly less like they’re narrating a disaster movie. But here’s the thing tickling the fancy of market historians: this recent scare wasn’t quite a full-blown bear market. It was a near-bear. And history, it turns out, has a bit of a soft spot for rebounds from near-bear territory. It’s like the market stumbled badly but didn’t quite faceplant. And those stumbles? They often lead to surprisingly strong get-back-ups.

Think of a bear market as the market officially catching the flu – a 20% or more drop from recent highs. Nasty business. A near-bear? That’s more like a really bad head cold. You feel awful, maybe hit a 15%, 18%, even 19.9% decline, but you never quite cross that official sickbed threshold. These near-misses happen way more often than people realize. And crucially, what tends to happen after these near-misses often looks a lot better than what follows a full-blown bear.

The Near-Bear Hall of Fame (Or Infamy, Depending on Your Portfolio)

Let’s rewind the tape. Recent history is littered with these almost-but-not-quite moments. Remember 2011? The US credit rating downgrade by S&P sent shivers down Wall Street’s spine. Stocks plunged, getting dangerously close to that 20% bear market line. Panic buttons were polished and ready. But then? The market didn’t just recover; it launched. Investors who held on (or, braver souls, bought the dip) were handsomely rewarded as the bull market charged ahead for years.

Fast forward to 2015-2016. China growth fears and an oil price crash had everyone fretting about a global recession. Stocks took a serious tumble, flirting aggressively with bear market territory. Gloom was the default setting. Yet again, the market found its footing before the official bear label stuck, and the subsequent rally was robust and sustained. It was a classic case of the market absorbing bad news and deciding, “Meh, we can handle this.”

Then there’s the late 2018 example. The Fed hiking rates, trade war tweets flying faster than confetti, recession fears mounting. The S&P 500 dropped nearly 20% in the fourth quarter. It was agonizingly close. Christmas cheer was in short supply among investors. But guess what? The Fed pivoted, some trade tensions eased (temporarily, at least), and the market rocketed back up, avoiding the bear tag and setting new highs within months. It was a stunning reversal that left many bears feeling… well, bearish about their bearishness.

See the pattern? Sharp, scary declines that stop just short of the bear market cliff edge, often followed by powerful rebounds. It’s not a guaranteed magic trick, but it’s a historical tendency worth noting. Why does this happen? It often boils down to two things:

1. The Scare Was Real, But Not Systemic: Near-bears are frequently sparked by specific, identifiable shocks (a geopolitical event, a growth scare, a policy misstep) rather than deep, structural economic rot. Once the initial panic subsides and investors reassess, they realize the core engine might still be okay.
2. Pent-Up Demand: The fear during the drop pushes money to the sidelines. Cash piles up. When the clouds start to lift, even a little, that sidelined cash often rushes back in, fueling a rapid recovery. It’s the fear-of-missing-out (FOMO) effect on steroids, amplified by relief.

So, What About This Time?

Now, let’s look at our most recent near-bear episode. Inflation screaming higher than a rockstar. The Fed slamming on the brakes with rate hikes at a pace not seen in decades. War in Europe. Supply chains still kinked. It was a perfect storm of worry. Stocks plunged. The S&P 500, the Nasdaq – they got bruised and battered, dipping well into correction territory and, for a while, looking like they might just tumble over that bear market edge.

But then… whispers of “peak inflation.” Maybe the Fed won’t have to hike quite as aggressively forever. Some decent earnings reports sneaking through the gloom. And suddenly, the bounce began. The current comeback attempt feels familiar to students of those past near-bear rebounds. We haven’t definitively crossed the bear market Rubicon (though some individual stocks and sectors certainly have), and the rebound has conviction.

Key similarities are hard to ignore:

• The Trigger Was Specific (Though Powerful): Rampant inflation forcing aggressive Fed action. A known, albeit painful, catalyst.
• Extreme Pessimism Peaked: Remember the doom-scrolling? The “this time it’s different, recession is inevitable” chatter? Sentiment got incredibly bleak, a classic contrarian indicator.
• Valuations Reset: The drop wasn’t just fear; it brought prices down from nosebleed levels to something more palatable, even attractive, for long-term investors. You weren’t buying at the top anymore.
• The Fed Narrative is Shifting (Slightly): Markets are forward-looking discounting machines. They’re starting to price in the end of the hiking cycle, even if the peak rate is still uncertain. That’s a massive change from pricing in endless hikes.

But Hold On, It’s Not All Rainbows and Unicorns

Before we break out the champagne and declare the bull market fully resurrected, let’s pump the brakes just a tad. History offers encouragement, not a crystal ball guarantee. There are genuine reasons for caution:

• Inflation’s Stubborn Grip: Is it really decisively beaten? Core inflation (stripping out food and energy) remains sticky. Wage growth is persistent. If inflation proves more tenacious than hoped, the Fed could easily crush this rebound with even more hawkishness. They’ve said they’ll do whatever it takes; we should probably believe them.
• The Lag Effect: Monetary policy works with long, variable lags. We’ve had a lot of rate hikes very quickly. The full economic impact – on consumers, businesses, hiring – likely hasn’t fully hit yet. Could a slowdown or recession still be lurking in late 2023 or 2024? Absolutely.
• Earnings Reality Check: Stock prices ultimately reflect corporate profits. We’ve seen some resilience, but if the economy slows significantly, earnings estimates for 2023 and 2024 might still be too optimistic. A wave of earnings disappointments could easily derail the rally.
• Geopolitical Wildcards: The war in Ukraine grinds on. Tensions with China simmer. Another energy shock? A new COVID variant? The world remains a messy, unpredictable place. An unexpected black swan event is always a risk.

Why History’s Whisper Still Matters

Despite these very real risks, the historical precedent of strong rebounds following near-bear scares shouldn’t be dismissed. It speaks to a fundamental market truth: corrections and near-bears are painful but normal. They are the market’s way of shaking out excess and resetting expectations.

The fact that we didn’t enter a full bear market this time suggests the underlying damage might be less severe. It hints that while the economy faces headwinds, a deep, prolonged downturn isn’t necessarily the base case priced in yet. The rapid rebound itself, if sustained, becomes a self-fulfilling prophecy to some extent, boosting confidence and encouraging more investment.

For investors, this history lesson offers a framework, not a fortune cookie message:

1. Don’t Panic Out at the Bottom: The near-bear history screams that selling into extreme fear, when the decline stops just short of bear territory, has often been the wrong move. Easier said than done, obviously.
2. Respect the Rebound’s Potential: Dismissing this comeback because “the fundamentals aren’t perfect yet” ignores how markets work. They climb a wall of worry. They often rebound strongly before all the data is unequivocally sunny. Waiting for perfect clarity usually means buying higher.
3. Stay Realistic About Risks: This isn’t 2021 anymore. The era of free money and gravity-defying valuations is over. The path higher will likely be bumpier, more volatile, and require more discernment. Focus on quality companies with strong balance sheets and sustainable earnings. Diversification isn’t dead; it’s essential.
4. The Fed is Still the Puppet Master: Keep one eye firmly glued to inflation data and the Fed’s reaction. Their next moves will be the single biggest determinant of whether this rebound turns into a durable bull or fizzles out.

The Bottom Line: Cautious Optimism, Informed by History

So, is CNBC’s headline right? Does the history of near-bear markets bode well for this stock comeback? The historical record certainly leans that way. It provides a compelling reason for cautious optimism. The market’s ability to rebound sharply from these specific types of declines is a notable pattern.

This doesn’t mean we’re guaranteed smooth sailing straight back to all-time highs. Inflation remains the dragon that needs slaying. The Fed’s tightening will bite. Earnings face pressure. And the world is, frankly, a bit of a mess.

However, the key takeaway is that avoiding the official bear market label is historically significant. It suggests the selling pressure, while intense, didn’t completely break the market’s structural back. It hints that the collective investor psyche, while battered, wasn’t pushed into full-blown, prolonged despair. The rebound we’re seeing fits the historical script of past near-bear recoveries.

Does this mean you should mortgage the house and go all-in on meme stocks tomorrow? Good lord, no. That’s a recipe for disaster in any market environment. But if you’re a long-term investor who felt the fear during the recent plunge, history offers a comforting nudge. Sticking to your plan, staying diversified, and maybe even strategically adding to positions during pullbacks within this rebound have been rewarded more often than not after these near-bear events.

The market loves a good comeback story. Based on the history of near-bears, this current attempt has a decent shot at writing another one. Just keep the optimism tempered with a healthy dose of vigilance. After all, the market’s favorite pastime is keeping us on our toes.