The stock market is a cyclical system, with bear markets followed by bull markets. During the bursting of the dot-com bubble in 2000, the bear market lasted two and a half years. According to Frank, the average bear market lasts about nine months, but it takes much longer to recover what was lost. If the next few years are average, investors may have three or four years left to return to pre-bear market levels.
The current bear market has been caused by concerns about the unknown ramifications of social distancing and travel restrictions on the economy. This has led to a wave of sales that has brought the S&P500 almost 20% below its record highs. However, history shows that not all bear markets lead to long-term declines and stocks can often pick up in the coming year. October is usually a volatile month for the stock market, but midterm election years are generally positive.
Inflation is also an important factor to consider when looking at stock market recovery. As the Federal Reserve raises interest rates, investors want to see a weaker labor market — with higher unemployment — as proof that inflation is finally starting to fall. Social media stocks, including Meta (Facebook's parent company), Alphabet (Google's parent company) and Snap, have warned that advertising revenues are lower than expected. This is especially concerning given how overvalued the stock market is and how stubborn high inflation has become.
It's impossible to predict exactly how long it will take for the stock market to recover from recent events. It could take six months, a full year or three years — no one knows for sure. But regardless of what happens in the short term, Mike Maloney's research shows that gold and silver may be the world's most interesting investments in the coming years. The need to pay rent and bills, buy food and feel financially secure outweighs any opinion on whether the stock market is good value for money or not. Long-term investors should not panic and should remember that bear markets are part of a normal cycle.