No one knows the answer to this question – no matter how experienced or confident they might sound. All we know is what happened in the past. And while hindsight is no guarantee of what the future will bring, it can help you put things into perspective.
So, here’s a brief history of bear markets: what they are, what they mean for investors, and how you can turn challenges into opportunities.
First of all, what does a bear market look like?
Economists define a ‘bear market’ as a decline of 20% or more in the value of a major share market index (like the S&P 500) for at least two months. The opposite of a bear market is a ‘bull market’, which is characterised by market gains of 20% or more over two months.
US bear markets have often been accompanied by a weakening economy with rising unemployment, reduced GDP, and declining corporate profits. Plus, sharemarket sentiment tends to be pessimistic and investment in lower-risk assets tends to increase.
How long do bear markets last?
Again, past performance is never indicative of future performance. But generally speaking, bull markets tend to last longer than bear markets: past bear markets lasted on average 10 months whereas the average bull market is three years long. Also, on average US shares lost 36% in past bear markets, but they gained 114% on average in bull markets.
Importantly, both bull markets and bear markets are a natural part of the investment cycle: you can’t have one without the other. Since the Great Depression in 2029, there have been 26 bear markets: this is the 27th.
|Start and End Date||Price Decline||Length in Days|
|7 Sep 1929 – 13 Nov 1929||-44.67%||67|
|10 Apr 1930 – 16 Dec 1930||-44.29%||250|
|24 Feb 1931 – 2 Jun 1931||-32.86%||98|
|27 Jun 1931 – 5 Oct 1931||-43.10%||100|
|9 Nov 1931 – 1 Jun 1932||-61.81%||205|
|7 Sep 1932 – 27 Feb 1933||-40.60%||173|
|18 Jul 1933 – 21 Oct 1933||-29.75%||95|
|6 Feb 1934 – 14 Mar 1935||-31.81%||401|
|6 Mar 1937 – 31 Mar 1938||-54.50%||390|
|9 Nov 1938 – 8 Apr 1939||-26.18%||150|
|25 Oct 1939 – 6 Oct 1940||-31.95%||229|
|9 Nov 1940 – 28 Apr 1942||-34.47%||535|
|29 May 1946 – 17 May 1947||-28.78%||353|
|15 Jun 1948 – 13 Jun 1949||-20.57%||363|
|2 Aug 1956 – 22 Oct 1957||-21.63%||446|
|12 Dec 1961 – 26 Jun 1962||-27.97%||196|
|9 Feb 1966 – 7 Oct 1966||-22.18%||240|
|29 Nov 1968 – 26 May 1970||-36.06%||543|
|11 Jan 1973 – 3 Oct 1974||-48.20%||630|
|28 Nov 1980 – 12 Aug 1982||-27.11%||622|
|25 Aug 1987 – 4 Dec 1987||-33.51%||101|
|24 Mar 2000 – 21 Sep 2001||-36.77%||546|
|4 Jan 2002 – 9 Oct 2002||-33.75%||278|
|9 Oct 2007 – 20 Nov 2008||-51.93%||408|
|6 Jan 2009 – 9 Mar 2009||-27.62%||62|
|19 Feb 2020 – 23 Mar 2020||-33.92%||33|
Source: Ned Davis Research, 12/21.
Interestingly, the bear markets of 2020 and now 2022-2023 interrupted a 10-year bull market, from 2009 to 2019 – a reminder that bulls don’t run forever.
The bear market we’re in right now was officially called in June 2022, when the S&P 500 closed with a 21% decline from its previous peak in January 2022. Essentially, this bear market is already over one year old. And with so many different factors at play at the same time, it’s impossible to tell how long more it will last.
Finding opportunities in a bear market
These insights clearly show just how difficult (not to say impossible) it is to ‘time the market’. Rather than waiting for the perfect time to get in or getting out when the market performance is negative, it’s crucial to have a well-thought-out plan and stick to it.
That doesn’t mean that there’s nothing you can do. In fact, there are several different strategies you can opt for, depending on your circumstances. Here are some examples:
- Diversify: As you know, diversification means spreading the risk across your portfolio by investing in a wide range of asset classes and regions. That’s what index funds can do on your behalf. Get in touch if you’d like to learn more.
- Hedging risk: If you’re looking at minimising equities or taking advantage of the opportunities available in this bear market, you may want to consider hedging strategies (e.g., dynamic asset allocation). That said, it’s important to ensure that the opportunity cost of your chosen hedging strategy is worth the value of mitigating downside risk, so please get in touch if you’d like to learn more.
- Dollar-cost averaging:
- When investing a regular amount each week or month, when share prices are lower, it means you get more shares for the same amount of money. Of course, it also means that when share prices increase, you can get fewer shares for the same regular payment.
- As a long-term investor, this is how you can accumulate more shares at lower prices and ensure that you’re well-positioned for an eventual recovery. Or, paying a regular amount means that your purchases are spread out, and the total price paid over a period of time is less impacted by the regular changes in share values.
These are just a few examples: the most appropriate strategy will depend on your needs, circumstances and most importantly, long-term goals. Please don’t hesitate to contact us if you’d like to discuss your options.
We’re here to help
Remember: the share market will always go through ups and downs, blips and corrections. But historically, it has performed well over the long term. Will it do that again? We don’t know yet. What we do know is that having a clear plan with steps, strategies and timelines can help you feel more in control – and avoid making financial decisions based on emotion.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.