A bear market is commonly defined as a decline of 20% in a major index from a recent peak over a 12 month period. Since 1950 there have been eight declines greater than 20% in the S&P 500. However, three of those declines, from previous high to bottom, were of shorter duration than 12 months and thus wouldn't fit this definition. For example, the crash of 1987 was part of a dramatic decline of 33.5% in the S&P 500. But it lasted only three months from peak to trough. Similarly the 20% plus declines that began in 1962 and 1966 lasted only 7 and 8 months, respectively.

The chart below annotates all eight 20% plus declines in the S&P 500 since 1950. The percent decline is shown in red and the percent gain from the previous low in blue. The data extends to the most recent high of 1565.15 on November 9, 2007.

Year Date Close Range Variance Length in months 1950 3-Jan-50 16.66 Start 0.0% - 1956 3-Aug-56 49.64 High 198.0% 80 1957 22-Oct-57 38.98 Low -21.5% 15 1961 12-Dec-61 72.64 High 86.4% 50 1962 26-Jun-62 52.32 Low -28.0% 7 1966 9-Feb-66 94.06 High 79.8% 44 1966 7-Oct-66 73.2 Low -22.2% 8 1968 29-Nov-68 108.37 High 48.0% 26 1970 26-May-70 69.29 Low -36.1% 18 1973 11-Jan-73 120.24 High 73.5% 32 1974 3-Oct-74 62.28 Low -48.2% 21 1980 28-Nov-80 140.52 High 125.6% 75 1982 12-Aug-82 102.42 Low -27.1% 21 1987 25-Aug-87 336.77 High 228.8% 61 1987 4-Dec-87 223.92 Low -33.5% 3 2000 24-Mar-00 1,527.46 High 582.1% 150 2002 9-Oct-02 776.76 Low -49.1% 31 2007 9-Oct-07 1,565.15 High 101.5% 61

Of the eight declines greater than 20%, the average was 33.2%. The length of time from peak to trough ranged from 3 to 31 months, with the average being 15 months.

The bull market phases were much longer, ranging from 26 to 150 months, with the average being 64 months.

The data presented here is not meant to suggest the beginning of a new bear market. However, the recent turmoil in the credit markets, the decline in the dollar, and signs of a slowdown in consumer spending suggest the possibility of a correction might be underway.

Whether we're in a momentary slump or the beginning of a longer downturn has been the subject of much controversy. Optimists discount the possibility of a recession and predict a "soft landing" for the United States economy.

Pessimists look back at the prolonged sideways market from 1968 to 1882 for a clue of what lies in store. That 14 year period, during which the S&P 500 bounced around the 100 point level, was characterized by stagflation -- a stagnant economy plagued by high inflation sometimes exceeding 10%. Thus far, inflation has remained under control. But the decline in the dollar and rising cost of oil and other commodities may lead to inflationary pressures.