All of this underscores what we need to keep in mind about markets: We should expect sell-offs, sometimes even of shocking magnitude, in the midst of long-term secular bull markets. In the same way, there can be bullish rallies in a bear market.
Just consider each of the past three secular markets: 1966-1982 (bear), 1982-2000 (bull) and 2000-2013 (bear) in terms of the above.
A 20-year post-World War II market rally eventually hit a wall in 1966, with the Dow approaching what seemed like an astronomical 1,000 early in that year. It didn't last, and the deficit spending to fund the Vietnam War followed by the Arab oil embargo and the Watergate scandal dragged down the economy and the market. It took the Dow 16 years to finally reach 1,000; in the meantime it had several brief rallies of about 27%, 19%, 67%, 75% and 38%. None of these heralded the end of the bear market or the start of a new bull market.
The inverse occurred during past bull markets: The 1982-2000 bull market saw declines in the S&P 500 Index of about 33% during 1987 (remember the day the Dow fell a record 23%?), the near-20% drop during the 1990 recession, the 14% stumble during the Asian currency crisis of 1997 and the 20% fall during the collapse of hedge fund Long-Term Capital Management in 1998. The point is, sell-offs can and do occur during a bull market without disrupting the underlying strength of the expanding economy.
Whether March 23 was the bottom or just a bottom is almost irrelevant. The broader question is whether the long-term factors that drove the U.S. economic expansion that started after the financial crisis are still with us: low interest rates, technological innovation and the continuing shift to services. That suggests the possibility that it may take more than a 60-day lockdown to derail the expansion.
If we can find a way to get beyond this tragic external shock to the market, we might find that the underlying secular bull market is still intact -- if we're lucky.
Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”