10 Crucial Things You Should Know About Bear Markets

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Another bear market has come and gone. For now, disaster has been postponed. As we wait for the next thing(s) to worry about and the inevitable market drop that will consume headlines, we wanted to share a list with a few bits of history to keep in mind. 

If you're doing your own research on past bear markets, you may run into incongruent figures when reviewing things since 1928. The irregularities are usually the result of how you break down market drops during the Great Depression. The images below provide some helpful context.  

  1. Watch for 20%: Market cycles are measured from peak to trough, so a stock index officially reaches bear territory when the closing price drops at least 20% from its most recent high (whereas a correction is a drop of 10%-19.9%). A new bull market begins when the closing price gains 20% from its low.
  2. Stocks lose 35% on average in a bear market. By contrast, stocks gain 111% on average during a bull market.
  3. Bear markets are normal/healthy. There have been 27 bear markets in the S&P 500 Index since 1928.  However, there have also been 28 bull markets—and stocks have risen significantly over the long term.
  4. Bear markets tend to be (relatively) short-lived. The average length of a bear market is 289 days or about 9.6 months. That’s significantly shorter than the average length of a bull market, which is 965 days or 2.6 years.
  5. Every 3.5 years: That’s the long-term average frequency between bear markets. Though many consider the bull market that ended in 2020 to be the longest on record, the bull that ran from December 1987 until the dot-com crash in March 2000 is technically the longest (a drop of 19.9% in 1990 nearly derailed that bull, but just missed the bear threshold).
  6. Bear markets have been less frequent since World War II. Between 1928 and 1945, there were 12 bear markets (approximately one every 1.5 years). Since 1945, there have been 15—one about every 5.1 years.
  7. About 42% of the S&P 500 Index’s strongest days in the last 20 years occurred during a bear market. Another 36% of the market’s best days took place in the first two months of a bull market—BEFORE it was clear a bull market had begun. In other words, the best way to weather a downturn could be to stay invested, given the evidence showing how difficult it is to time the market’s recovery.
  8. A bear market doesn’t necessarily indicate an economic recession. There have been 27 bear markets since 1928 but only 15 recessions. Bear markets often go hand-in-hand with a slowing economy, but a declining market doesn’t necessarily mean a recession looms.
  9. Assuming a 50-year investment horizon, you can expect to live through about 14-15 bear markets, give or take. Although it can be challenging to watch your portfolio dip with the market, it’s essential to remember that downturns have always been a temporary part of the process.
  10. Bear markets can be painful. Still, overall, markets are positive a majority of the time. Of the last 94 years of market history, bear markets have comprised only about 21.4 of those years. In other words, stocks have been on the rise 78% of the time.

Lastly, before you look at the pictures, here is a checklist that can be helpful as you review your portfolio.   

SOURCE – Hartford Funds

Note: If you have trouble seeing the images below, just zoom in. Try holding “ctrl” and rolling the trackball on your mouse. Or, if you’re using Chrome, click the 3 dots at the top right and adjust your zoom setting.

PS – below is a visual reminder that stocks don’t always go up. Even in the bullest of markets, stocks fall. In fact, over the last 40 years, the SP500 has averaged a 14% drop each year. Why do I mention this? Because your baseline expectation should be that this year will be no different. After all, we have only fallen as far as 8%.  

Happy Investing.