This week’s market action should eliminate any remaining doubt that we are in a bear market of historic proportions. How historic? There have been some pretty famous bear markets over the last century, and I’ve plotted a few of them on the chart below. Using the peak of the market as the base (at a level of 100), the Dow Jones Industrial Average’s performance since the October 2007 peak can be put into perspective.

Equity Indices' Performance In Bear Markets (Index: Peak=100)

Exactly one year (52 weeks) from the peak, the Dow is down around 39% (excluding whatever happens today). That’s even more killer than the Nikkei’s drop 52 weeks from its peak in 1989 (37%), and even the Dow’s collapse in 1929-1930 (36%). If the Dow closes down even further today (and futures are indicating that it will), then we might have a bigger 52-week bear market on our hands than even the legendary fin-de-siecle-Japan Nikkei and pre-Depression Dow collapses. But on the bright side, we haven’t hit Nasdaq 2000-2001 territory – the tech bourse dumped by 58% over the course of the year after its peak.

What happens next is anyone’s guess. On the positive side, the other three bear markets we have looked at tended to have seen the majority of damage done over the first 52 weeks — which should be the case here, unless you think the Dow’s going to slide by more than 80%, or below 3,000 or so. On the negative side, it took 35 years for the Dow to recover from its 1929-1930 crash. And the Nikkei, which peaked above 38,000 in 1989, has yet to recover, and is in fact still down nearly 80% from that point at the time of writing.

Not to get the tinfoil hat on or anything, but the Dow looks like it could drop another few thousand points yet. 7,000 would put it about half-price from the peak. Crazy? Think of it this way: the Dow is now closer to 7,000 than it is to 10,000. And if we go Dow 1929-style, with a 70% drop two years (104 weeks) from the peak, we’re talking about Dow 5,000.

On that happy note, have a great weekend.