12 Bear Markets in History: What Happened and How Long They Lasted The Motley Fool

The Nasdaq entered a bear market March 7, and the Dow Jones Industrial Average is a bad day or two away. Bear markets, or when stocks drop at least 20 percent from their most recent peaks, are relatively rare and signal that investors are viewing the economy with serious pessimism. In the early 2000s, after the dot-com bubble burst, a period of recession lasted eight months. This bear market went on for the better of two years, with the market losing 36% of its value.

1. The post-Covid-19 supply chain crisis fueled runaway inflation, and the Federal Reserve hiked interest rates seven times that year in a campaign to get prices under control.
2. The signs of a weak or slowing economy are typically low employment, low disposable income, weak productivity, and a drop in business profits.
3. Contrary to popular belief, bear markets are actually excellent for trading and investing.
4. That said, studying the stock market’s past performance can still provide worthwhile insight.
5. So while it might seem unnatural for stocks to erase so much of their recent gains, in the long run, the market is headed on an upward trajectory.

Both the Dow Jones Industrial Average and the Nasdaq are also in bull markets, having entered them on Nov. 30, 2022, and May 8, 2023, respectively. However, not all long movements in the market can be characterized as bull or bear. Sometimes a market may go through a period of stagnation as it tries to find direction. In this case, a series of upward and downward movements would actually cancel-out gains and losses resulting in a flat market trend. Though stock markets are not indicators of broad economic activity, steep declines in the stock market have often occurred at the same time as downturns in the economy.

But 20% is an arbitrary number, just as a 10% decline is an arbitrary benchmark for a correction. Another definition of a bear market is when investors are more risk-averse than risk-seeking. This kind of bear market can last for months or years as investors shun speculation in favor of boring, sure bets. This bear market lasted 630 days with a 48.2% decline in the market. The recession lasted 16 months, with much of the economic woes starting with the OPEC oil embargo.

On the other end of the spectrum, again, was the 2020 recession that gained back 20% (bull market) even faster than it lost 20%. Since 1929, there have been nearly twice as many bear markets as recessions in the USA. Nine of those bear markets occurred around the Great Depression and the recession that followed. Because the market’s behavior is impacted and determined by how individuals perceive and react to its behavior, investor psychology and sentiment affect whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent.

Bear Market Guide: Definition, Phases, Examples & How to Invest During One

The first was in the first two quarters of 1980 and the second lasted from July 1981 to November 1982. The Fed raised interest rates to fight skyrocketing inflation, leading to the recession. https://1investing.in/ The markets go down, which means that investment values go down. Those seeking to cash out for a profit may find that hard to do, especially if the investment was a short-term strategy.

From 1950 through 2020, the S&P 500 was up 53.7% of days and down 46.3% of days, and the percentage of positive days exceeded negative days in every decade. While the stock market saw 446 days of a bear market with a 21.63% drop in value, the GDP fell 4.1% in the last quarter of 1957 and 10% in the first quarter of 1958. The recession lasted until April of 1958 with unemployment reaching a high of 7.5% in July of 1958.

Change in Economic Activity

One of the most notable bear markets in recent history coincided with the global financial crisis occurring between October 2007 and March 2009. During that time the Dow Jones Industrial Average (DJIA) declined 54%. The global COVID-19 pandemic caused the most recent 2020 bear market for the S&P 500 and DJIA. The Nasdaq Composite most recently entered a bear market in March 2022 on fears surrounding war in Ukraine, economic sanctions against Russia, and high inflation. A bear market is one where the market declines 20% or more over at least a two-month period of time.

Are We in a Bull or Bear Market As of 2023?

Standard & Poors also issued its first U.S. credit downgrade in history following a political dispute in Congress about the U.S. debt ceiling. While prices remained relatively stable throughout most of the early 1960s, the Federal Reserve reported that inflation jumped to 5% in 1969 from 1.7% in 1965. That marked the worst sustained period of U.S. inflation since World War II. Economic conditions were worsened by a large influenza outbreak in early 1957, and the Federal Reserve applied additional pressure to the economy by raising interest rates to combat inflation. I spoke about this in my previous essay, Insanity is Prevalent.

While bull markets often last for years, a significant portion of the gains typically accrue during the early months of a stock market rally. The 2008 bear market was one of the worst global crashes in recent memory. Also bear markets history called the subprime mortgage crisis or the global financial crisis, it was caused by the complete collapse of the housing market in the US. This was due to banks and other institutions handing out subprime mortgages.

Hedging your portfolio with inverse ETFs or puts can help offset the losses on your long-term holdings. There’s a reason why they say billionaires are made in bear markets. Adding great stocks at depressed prices can provide incredible long-term gains in the future. When an asset class bubble pops like with Dotcom stocks, real estate, or even commodities like oil, it can send the equities market into freefall. A majority of factors that lead to a bear market are macroeconomic in nature — things that affect the entire global economy and not just headwinds for individual companies. These can include familiar ones like global pandemics, war, or other geopolitical tensions.

During the first 10 months of 2022, the U.S stock market was mired in a painful bear market. The post-Covid-19 supply chain crisis fueled runaway inflation, and the Federal Reserve hiked interest rates seven times that year in a campaign to get prices under control. For instance, the current bull market started on Oct. 12, 2022, but that wasn’t clear until Jan. 19, 2024. So investors missed out on substantial gains if they waited for definitive proof that the previous bear market was over. To that end, the most prudent strategy is to stay invested through good times and bad times.

Mr. Duggan is also the author of the book “Beating Wall Street With Common Sense” and has contributed news and analysis to U.S. News & World Report, Seeking Alpha, InvestorPlace.com and The Motley Fool. Mr. Duggan is a graduate of the Massachusetts Institute of Technology and resides in Biloxi, Mississippi. Get Forbes Advisor’s expert insights on investing in a variety of financial instruments, from stocks and bonds to cryptocurrencies and more. The market tumble of 2011 began with a sovereign debt crisis in Europe.

Since 1929, the average length of a bear market has been around 9.6 months. The dotcom crash of 2000 to 2002 also was spurred by a loss of investor confidence in stock valuations that had reached historic highs. The S&P 500 tumbled by 36.8% over the course of 1.5 years, punctuated by a brief recession in the middle.

Bear markets are part of normal market trends and are a sign of stocks going down in value for an extended period of time. The difference between the two relies on speed (how fast declines occur) and length (how long they last). Stock market crashes are quick and brief, while bear markets are slow and prolonged. The bear market that began in October 2007 is the most severe bear market in the history of the S&P 500. It emerged from the bursting of the subprime mortgage bubble and the global financial crisis.

Investors fear that as the Federal Reserve attempts to bring inflation down from its 40-year high, it will slow the economy too much, sapping consumer spending and business profits. The vertical scale is adjusted so that percentage changes are comparable. In the early 1960s, the U.S. auto industry that had been centered in Detroit, Mich., became more globalized, and domestic auto sales and production began to decline. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. If we had violated it, we would have to break below 5,000 to invalidate the second main super-up trend line.

The timing for these manoeuvres is critical—it takes time to deploy substantial sums into the market, just as it does to withdraw them. Consequently, markets are often driven higher than natural levels to accommodate these transactions. This brief bear market was triggered by the failed Bay of Pigs military invasion in April 1961 and the Cuban Missile Crisis in October 1962, which sparked Cold War jitters.

To hit the 20% gain threshold, the Dow needs to get back to 10,141.43, which is still a long ways away from the Dow’s current level of 9,300. A few years from now, we’ll be back on the growth path, wondering why we were so worried about bear markets anyway. The most commonly used definition for a bear market is when major indices, like the S&P 500 or the NASDAQ, fall by 20% or more, over a…