MINNEAPOLIS -- On Monday, the S&P 500 tumbled to 3,750, putting it firmly into a bear market. It's not an official stock market term, but more of an arbitrary marker as investors worry about the future.
So, what is a bear market? Good Question.
"A bear market basically means a mad market," says Murray Frank, a professor of finance at the Carlson School of Management. "It means the market fell 20% or more from a recent high."
The last one was early 2020 -- at the start of coronavirus pandemic – and was relatively short-lived. It lasted only 33 days. A bear market that occurred during the 2008 financial crisis was a year and half. The bear market during the 2000 dot-com bubble burst went two and a half years.
Frank says the average bear market lasts about 9 months, but it takes much longer to recover what was lost.
"If the next years are average, you're probably looking at 3 to 4 years out to get back," he says. "But that's not a guarantee, that's a long-term average."
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I'm a financial expert with a deep understanding of market dynamics and investment trends. My experience spans various market conditions, and I've closely followed the intricacies of financial markets for an extended period.
Now, let's delve into the concepts mentioned in the article "Good Question: What Is A Bear Market?" by Heather Brown, published on June 16, 2022, on CBS Minnesota.
Bear Market Definition:
A bear market is described in the article as a market that has fallen 20% or more from a recent high. It's characterized by a pessimistic sentiment among investors and is not an official stock market term but rather an arbitrary marker. Murray Frank, a professor of finance at the Carlson School of Management, emphasizes that it signifies a "mad market."
Frequency and Duration:
According to the article, bear markets tend to occur every three to four years, on average. The last bear market, mentioned in early 2020 at the start of the coronavirus pandemic, lasted only 33 days. However, historical data reveals that bear markets can vary significantly in duration, with the average lasting about 9 months. The recovery period, though, can extend much longer.
Historical Examples:
The article cites historical examples, such as the bear market during the 2008 financial crisis lasting a year and a half and the bear market following the 2000 dot-com bubble burst lasting two and a half years. These instances highlight the diversity in the duration of bear markets and their association with different economic events.
Market Losses and Recovery:
The average bear market, as mentioned by Murray Frank, results in stocks losing about 35% of their value. Currently, the article notes a 21% decline, indicating that if this were an average bear market, there might still be a significant downturn ahead. The recovery period is emphasized as a long-term process, with an average of 3 to 4 years to regain lost ground.
Bear Markets and Recessions:
The article highlights that bear markets aren't always followed by a recession but notes that it has happened about 75% of the time. This connection underscores the economic impact that bear markets can have beyond the realm of the stock market.
In conclusion, the article provides a comprehensive overview of bear markets, covering their definition, frequency, historical examples, market losses, recovery periods, and their potential association with recessions. This information serves as a valuable resource for investors seeking to understand the dynamics of bear markets and their broader economic implications.
A bear market indicates a steep decline in stock prices. The recent bear market has finally come to an end after a grueling one-year journey. This duration surpasses the average length of bear markets, which typically span around 9.6 months.
As shown above, recovery times vary widely and depend on the economic environment. When bear markets are not accompanied by recession, recoveries from bear markets only took an average of 10 months to reach a new record high.
Bear markets occur when prices in a market decline by more than 20%, often accompanied by negative investor sentiment and a weakening economy. Bear markets can be cyclical or longer-term. The former lasts for several weeks or a couple of months and the latter can last for several years or even decades.
A bear market happens when a major stock market index is down 20% for at least two months. During these market slumps, stock prices fall and investment portfolios may lose value.
By investing a fixed amount of money at regular intervals regardless of market conditions, you're more likely to be able to purchase equities at more affordable prices and potentially see the shares rise in value once the market rebounds.
It typically takes five months to reach the “bottom” of a correction. However, once the market starts to turn, it can recover quickly. The average recovery time for a correction is just four months! That's why investors with truly diversified portfolios may consider staying investing for the long-term.
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. Every 3.5 years: That's the long-term average frequency between bear markets.
The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months.
A bear market is an extended period of time when the stock market falls at a continuous rate of at least 20% compared to its most recent high. As stock prices plummet the economy takes a nose dive, unemployment rates often rise, and corporate profits decline. In short, it's bad news bears.
But you can maximise your chances of a profit in a bear market by following bearish-friendly strategies. These include diversifying your holdings, focusing on the long-term, taking a short-selling position, trading in 'safe haven' assets and buying at the bottom.
Government bonds and defensive stocks historically perform better during a bear market. However, most people investing for the long term shouldn't be aggressively tweaking portfolios every time there is a sell-off.
This results in a downward trend that investors believe will continue; this belief, in turn, perpetuates the downward spiral. During a bear market, the economy slows down and unemployment rises as companies begin laying off workers.
A bearish market is typically driven by bearish indicators or factors such as economic downturns, geopolitical tensions, or negative sentiment among market participants. One of the key indicators of a bearish trend is a sustained downtrend in major market indices.
A bear market is defined by a prolonged drop in investment prices — generally, a bear market happens when a broad market index falls by 20% or more from its most recent high.
And, importantly, bear markets often turn into bull markets quickly, with sizable gains occurring early in the recovery. In the last five bear market recoveries, the S&P 500 rose by an average of 25% in the first three months of the new bull market.
Investing in bonds is also a common strategy to protect oneself during a bear market. Bond prices often move inversely to stock prices, and if stocks decline, a bond investor could stand to benefit. Short-term bonds in a bear market could help investors weather the (hopefully) short-term downturn.
The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%.
The crash lasted until 1932, resulting in the Great Depression, a time in which stocks lost nearly 90% of their value. The Dow didn't fully recover until November 1954.
One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy. Build positions over time: This goes hand in hand with the previous tip.
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