The stock market

This Bear Market

Bear Markets

The most recent (and shortest) bear market was in March 2020, when Covid pandemic lockdowns sent the U.S. economy into a brief recession. That downturn was far shorter than other bear markets in the past and lasted only one month compared to the bear markets. Stocks took just over a month to bottom out at a neary 34% decline during the 2020 bear market.

“If a full-blown crisis and recession such as in 2000-2002 and 2008-09 can be avoided, this bear market may bottom soon,” predicts Ryan Detrick, chief market strategist for LPL Financial. With over half of the last five bear markets ending in three months or less, “the current bear market may be closer to a bottom than many expect,” he says, adding, “how this bear market will end will likely hinge on the pace at which inflation comes down, which will dictate the timing and magnitude of the Federal Reserve’s rate hiking campaign.”

This bear market was confirmed on June 13 when the S&P 500 closed 21.8% below its Jan. 3, 2022, record high. According to Reuters, the average bear market typically bottoms out after a little more than 12 months, and then takes two years to fully rebound. 

However, it’s impossible to predict given the many factors that go into creating and sustaining a bear market. Factors typically include economic trends, interest rates, sociopolitical events, news media, psychology, history and even the general mood of investors.

According to S&P Global, a bear market happens when the S&P 500 closes 20% below its peak close. The last bear market occurred in early 2020 after the COVID-19 pandemic brought the U.S. economy to a near halt.

What it means for investors is that they may want to reconsider their strategies until the inevitable American economic recovery. That doesn’t necessarily mean abandoning your current strategy and replacing it with something else. In fact, almost all stock experts agree that a bear market is no time to go into panic mode. 

Data To Consider

The market’s recovery can be worth the wait and highly lucerative. Patient investors have been rewarded after downturns:

Stocks historically have recovered, often sharply following a downturn.

Since the Great Depression began in 1929, every decade has had major declines in the S&P 500. And, in every case, the years following those declines have delivered, on average, positive returns.

On average, returns in the first year after the five biggest market declines equaled 70.95%. So a hypothetical $10,000 investment would have more than doubled over the five years after each market downturn.

Since 1929, every downturn in the S&P 500 of 15% or more has been followed by a recovery, with an average first-year return of 55%. Investors who fail to get back in to the market at the right time can miss out on the full benefit of market recoveries. 

Prepare for the market’s rebound

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Disclaimer: This content is only intended for informational purposes. Before making any investment, you should always do your own research and analysis.
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