The headline said "record high"
On January 3, 2022, the S&P 500 closed at a record. In 2021 it had risen about 27%, one of its better years.
That is not what most investors lived through. We measured every US stock we cover that traded above $5 and $1 million a day through 2021, about 2,800 of them, from its own 2021 high:
| On January 3, 2022, the index's record | At the 2022 low | |
|---|---|---|
| The S&P 500 | at its record | about 25% below it |
| The typical US stock (median) | about 16% below its 2021 high | about 48% below its 2021 high |
| Stocks down 20% or more | more than 4 in 10 | about 3 in 4 fell 30% or more |
| Stocks down 50% or more | 1 in 5 | almost half |
For most portfolios, the bear market began in 2021, under a record high. The index hid it because a handful of very large companies kept rising while everything else fell.
Breadth saw it first
Read the two panels together:
- February 2021: 80% of stocks in Stage 2, about as broad as a market gets. The index would climb another 23% from here.
- End of 2021: the S&P 500's record. But the market underneath had been narrowing for ten months; only 37% of stocks were still in Stage 2.
- July 2022: 7 in 100 stocks in Stage 2. The index was about 20% below its record; the typical stock was much further down.
Anyone watching only the index saw a record high at the end of 2021 and a bear market that began in 2022. Anyone watching breadth saw ten months of warning, and a clear reason to tighten stops and buy less long before the damage reached the index.
What held up
In a falling market, the stocks that hold up are worth noticing; they are often the next leaders. In 2022 a few stood out:
- Energy. By April 2022, nine in ten energy stocks were in Stage 2, while across the whole market it was about one in four. Exxon Mobil rose about 47% in the first half of the year as the S&P 500 fell about 24%.
- Eli Lilly rose 7% over the same months and re-entered Stage 2 in late March, mid-decline. It then roughly doubled by the end of 2023 (lesson 5).
Both were in Stage 2 while almost nothing else was. That is what relative strength looks like in a bear market.
The turn
What 2021 teaches
- A record in the S&P 500 is not a healthy market by itself. Check how many stocks are rising.
- Months of narrowing breadth are a reason to buy less and tighten stops.
- In a falling market, notice the few stocks still in Stage 2: they often lead next.
- Don't wait for the index to confirm what breadth already shows.
The market read, the share of stocks in Stage 2 and above their 200-day average, and how both have moved, updated after every close.
Questions people ask
What was the 2021 stealth bear market?
Through 2021 the S&P 500 kept setting records, carried by its largest companies, while most other stocks were already falling. On January 3, 2022, the day of the index's record, the typical US stock was already about 16% below its own 2021 high, and more than four in ten were down 20% or more.
What is a stealth bear market?
A fall that hits most stocks hard while the headline index holds up, because a few large companies keep it afloat. Breadth measures, such as the share of stocks rising, show it; the index hides it.
How far did the typical stock fall in 2021 and 2022?
Among the US stocks we cover that traded above $5 and $1 million a day through 2021, the typical one fell about 48% from its 2021 high to its 2022 low. The S&P 500 fell about 25% from its record to its October 2022 low.