Navigating the financial markets requires resilience and a long-term perspective. Just as elite athletes need rest days to maintain peak performance, markets occasionally need to reset after periods of record-setting gains. These downturns, known as bear markets, are a natural part of the investing lifecycle. Here’s what every investor should understand about these phases.
What Is a Bear Market?
A bear market occurs when a major stock index, such as the S&P 500, experiences a prolonged decline of 20% or more from its most recent peak. This is distinct from a market correction, which involves a drop of 10% to 19.9%. Once prices recover and rise 20% from their lowest point, a new bull market begins.
Historical data shows that bear markets result in average losses of around 35%. In contrast, bull markets see average gains of approximately 112%, highlighting the importance of staying invested for long-term growth.
Historical Frequency and Duration
Bear markets are a normal part of market cycles. Since 1928, the S&P 500 has experienced 27 bear markets. Despite these downturns, there have been 28 bull markets, and equities have trended upward over extended periods.
On average, bear markets last about 289 days, or roughly 9.6 months. This is significantly shorter than the average bull market, which spans 988 days or 2.7 years. The long-term average frequency between bear markets is approximately every 3.5 years.
Since World War II, bear markets have become less frequent. Between 1928 and 1945, there were 12 bear markets—one about every 1.5 years. From 1945 onward, there have been 15, occurring approximately every 5.1 years.
Market Behavior During Downturns
Interestingly, some of the market’s strongest days occur during bear markets. Over the past two decades, about 42% of the S&P 500’s best-performing days took place during bear markets. An additional 36% happened in the first two months of a bull market—before it was officially recognized.
This underscores why market timing is notoriously difficult. The most effective strategy to weather downturns is often to remain invested, ensuring you capture the benefits of sudden recoveries.
Bear Markets vs. Economic Recessions
A common misconception is that bear markets always signal an economic recession. Since 1928, there have been 27 bear markets but only 15 recessions. While bear markets often coincide with economic slowdowns, a declining market does not automatically mean a recession is imminent.
Long-Term Investment Perspective
For investors with a 50-year horizon, experiencing around 14 bear markets is normal. Although watching portfolio values decline can be unsettling, it’s crucial to remember that downturns have always been temporary. Over the past 95 years, bear markets have accounted for only about 21.4 years, meaning stocks have been rising roughly 78% of the time.
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Notable Historical Bear Markets
The following table highlights major S&P 500 bear markets since 1929, illustrating their duration and severity:
| Start and End Date | % Price Decline | Length in Days |
|---|---|---|
| 9/7/1929–11/13/1929 | -44.67 | 67 |
| 4/10/1930–12/16/1930 | -44.29 | 250 |
| 2/24/1931–6/2/1931 | -32.86 | 98 |
| 6/27/1931–10/5/1931 | -43.10 | 100 |
| 11/9/1931–6/1/1932 | -61.81 | 205 |
| 9/7/1932–2/27/1933 | -40.60 | 173 |
| 7/18/1933–10/21/1933 | -29.75 | 95 |
| 2/6/1934–3/14/1935 | -31.81 | 401 |
| 3/6/1937–3/31/1938 | -54.50 | 390 |
| 11/9/1938–4/8/1939 | -26.18 | 150 |
| 10/25/1939–6/10/1940 | -31.95 | 229 |
| 11/9/1940–4/28/1942 | -34.47 | 535 |
| 5/29/1946–5/17/1947 | -28.78 | 353 |
| 6/15/1948–6/13/1949 | -20.57 | 363 |
| 8/2/1956–10/22/1957 | -21.63 | 446 |
| 12/12/1961–6/26/1962 | -27.97 | 196 |
| 2/9/1966–10/7/1966 | -22.18 | 240 |
| 11/29/1968–5/26/1970 | -36.06 | 543 |
| 1/11/1973–10/3/1974 | -48.20 | 630 |
| 11/28/1980–8/12/1982 | -27.11 | 622 |
| 8/25/1987–12/4/1987 | -33.51 | 101 |
| 3/24/2000–9/21/2001 | -36.77 | 546 |
| 1/4/2002–10/9/2002 | -33.75 | 278 |
| 10/9/2007–11/20/2008 | -51.93 | 408 |
| 1/6/2009–3/9/2009 | -27.62 | 62 |
| 2/19/2020–3/23/2020 | -33.92 | 33 |
| 1/3/2022–10/12/2022 | -25.43 | 282 |
| Average | -35.24 | 289 |
Past performance does not guarantee future results.
Building a Resilient Portfolio
A well-diversified portfolio can help investors navigate both bull and bear markets with greater confidence. Diversification spreads risk across various asset classes, potentially reducing the impact of market volatility.
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Frequently Asked Questions
What defines a bear market?
A bear market is characterized by a decline of 20% or more in a major stock index from its recent peak. It represents a prolonged period of falling prices and negative investor sentiment.
How long do bear markets typically last?
The average bear market lasts about 9.6 months, though some are much shorter. For instance, the 2020 bear market lasted only 33 days, while others, like the 1973–1974 downturn, persisted for over 600 days.
Should I sell my investments during a bear market?
Selling during a downturn often locks in losses. Historically, markets have recovered and gone on to reach new highs. Staying invested allows you to benefit from eventual recoveries.
Can bear markets predict economic recessions?
Not always. While bear markets and recessions sometimes overlap, there have been more bear markets than recessions historically. Economic indicators provide better recession signals than market performance alone.
How can I prepare for a bear market?
Maintain a diversified portfolio, avoid overleveraging, and focus on long-term goals. Having a balanced asset allocation can help mitigate losses during downturns.
Are there investment opportunities in bear markets?
Yes. Lower stock prices can present buying opportunities for long-term investors. Dollar-cost averaging allows you to invest consistently regardless of market conditions.
Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or protect against loss in declining markets. This material is provided for educational purposes only.