Corrections, gummy bears and grizzly bears in shares

February 10th 2022

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Key Points

  • Shares have had a good rebound but could still fall further in the short term as risks remain high around monetary tightening and geopolitical tensions.
  • However, a deep bear market is unlikely as US, global and Australian recessions are unlikely to be imminent.



While shares have had a nice rebound from their January lows helped in part by some good earnings news – reversing around half of their 10% or so fall, concerns remain high around inflation, monetary tightening and the high risk of a Russian invasion of Ukraine. Our assessment remains that it’s too early to say we have seen the lows, but we remain of the view that January’s falls are not the start of the major bear market.


The three bears – correction, gummy & grizzly

Very simply there are 3 types of significant share market falls:

I first saw the terms “gummy bear” and “grizzly bear” applied by stockbroker Credit Suisse several years ago and find them to be a good way to conceptualise bear markets. Grizzly bears maul investors but gummy bears eventually leave a nicer taste (like the lollies). As we pointed out a couple of weeks ago in “Share market falls – seven things for investors to keep in mind”, corrections are quite normal and healthy as they enable the sharemarket to let off steam and not get too overheated. Excluding the present episode, since 2011 there have been roughly seven corrections and three gummy bear markets (2011, 2015-16 and 2020) in Australian shares.

The next table shows bear markets in Australian shares since 1900. The first column shows bear markets, the second shows the duration of their falls and the third shows the size of the falls. The fourth shows the percentage change in share prices 12 months after the initial 20% decline. The fifth shows whether they are associated with a recession in the US and/or Australia. The final column shows the 1-year rebound from the low.


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Based on the All Ords, excepting the ASX 200 for 2015-16. I have defined a bear market as a 20% or greater fall in shares that is not fully reversed within 12 months. Source: ASX, Bloomberg, AMP


If a gummy bear market is defined by a 20% decline after which the market is higher 12 months later, whereas a grizzly bear market sees a continuing decline over the subsequent 12 months after the first 20% decline, then since 1900 there have been 13 gummy bears (highlighted in black). That leaves six grizzly bear markets (in red). Several points stand out:

  • First, the gummy bear markets tend to be a bit shorter and usually see much smaller declines averaging 27% compared to 46% for the grizzly bear markets.
  • Second, the average change over 12 months after the initial 20% fall is 15% for the gummy bear markets, but it’s a 23% decline for the grizzly bear markets.
  • Third, the grizzly bear markets invariably go with recessions, whereas the gummy bear markets tend not to be. Five of the six grizzly bear markets saw a US and/or Australian recession whereas less than half of the gummy bears did.
  • Fourth, after the low,the share market rebounds sharply. This makes it hard to time, as by the time investors get back in the market is often above where they sold.

US share market falls are also much deeper and longer when there is a recession and, of course, moves in US shares have a significant influence on the Australian share market. The next table shows US share market falls greater than 10% since the 1970s. The first column shows the period of the fall, the second shows the decline in months, the third shows the percentage decline from top to bottom, the fourth shows whether the decline was associated with US recession or not and the fifth shows the gains in the share market one year after the low. Falls associated with recessions are highlighted in red.


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Falls associated with recessions are in red. Source: Bloomberg, AMP


Again, several points stand out:

  • First, US share market falls associated with recessions tend to be longer and deeper than those without a recession.
  • Second, after the low the US share market rebounds sharply, particularly after falls associated with the recession.

So, whether a recession is imminent, particularly in the US, is critical in terms of whether we will see a major bear market.


Is recession likely?

Our assessment is that, short of an external shock – a Russian invasion of Ukraine driving much higher European gas prices or a more deadly covid wave are the main risks here – a US, global and/or Australian recession is not imminent. Short term forecasting is fraught with difficulty, but right now, while inflation and worries about monetary tightening are concerning, it seems premature to expect a recession:


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Source: RBA, Macrobond, AMP



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Source: NBER, Bloomberg, AMP


Global growth is likely to slow this year but to a still strong 4.5%, with Australian growth also around 4.5%, despite the Omicron wave resulting in a brief set back in the March quarter. So, it’s unlikely the falls in shares in January are the start of a grizzly bear market. That said, shares could still fall further in the short term, before resuming the bull market.


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.