I have been working on setting up bear market shading in my charts rather than recession shading.
The results were so unexpected and striking that I though I would share them.
First, like recessions these is not a set definition of a bear market. The generally accepted rule of thumb is over a 20% market decline. Since I’m using monthly data rather than daily data my definition is of a multi-month drop of over 10% that causes the market to fall below its year-ago level. This includes 1987 even though the year-over-year change in the market did not occur until well into the 1988 bull market.
But the striking lesson this chart clearly shows is how unusual the 1980s-1990s era was. It was a 20 year period of no protracted bear market. As far back as the stock market data goes(1871) nothing like this had ever happened. No wonder investors had irrational exuberance in the late 1990s. It was part of the great moderation that was due in part to the secular drop in bond yields from the all time peak for Treasuries of some 14% in October 1981 and a similar decline in the inflation rate.