The recent bear market in equities has been unusually severe. It has also been unusually short by the standards of previous big bears. This suggests that a period of base-building will be necessary before markets can embark on a sustained recovery.

The table compares the fall in the Dow Industrials between October 2007 and March 2009 with the seven biggest bear markets of the last century. The peak-to-trough decline of 54% exceeds every prior downturn except the depression bear of 1929-32, when prices slumped by 89%.

The falls in the six other bear markets ranged from 45% to 52%. Prices seem to find a floor after a decline of about a half. This was true even in the 1929-32 bear: after a 48% drop between September and November 1929, equities rallied by 48% before embarking on a further prolonged slide. A recovery from the levels plumbed in March this year was, therefore, predictable.

If the bear market ended in March, however, it will have been only 17 months in duration – five months less than the shortest of the twentieth century bears. This implies that there may be more work to do on the downside – in terms of time if not price – before a sustained advance can begin.

Some of the prior bear markets show little resemblance to the recent decline. The 1909-14 and 1937-42 downturns were influenced by world wars. A repeat of 1929-32 is unlikely – policy mistakes made in the early 1930s have so far been avoided.

The respected financial and economic analyst Tony Plummer argues that equities experience severe bear markets at the end of 30-year economic cycles. He suggests comparing the recent decline with the 1919-21 and 1973-74 bears, which also occurred around 30-year cycle troughs. (Equity market behaviour around the 30-year low in the 1940s was distorted by the war.)

There is also a case for comparing the recent decline with the 1906-07 bear, which was associated with a major financial panic and extreme banking system distress. As Plummer notes, the failure of the Knickerbocker Trust Company in October 1907 and the subsequent policy response, orchestrated by J P Morgan, contain many parallels with events surrounding Lehman's bankruptcy last autumn.

These three bear markets (i.e. 1906-07, 1919-21 and 1973-74) bear a close resemblance, with equities declining by 45-49% over 22-23 months. The chart provides a comparison with the recent decline. Equities undershot the historical range in early 2009, probably reflecting fears of banking system nationalisation, but have since returned to a level consistent with the prior bears.

If these three earlier cycles are a guide, equities are unlikely to embark on a sustained advance before August / September. Until then, prices may consolidate their recent gains or – in a worst case scenario – retest the March lows. The 50% peak-to-trough barrier, however, provides important support.