Content
It can be scary to see stock prices fall 20% or more from a recent high — but the one thing investors shouldn’t do is panic. There’s no doubt that bear markets can be scary, but the stock market has proven it will bounce back eventually. J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A.
Trying to recoup losses can be an uphill battle unless investors are short sellers or use other strategies to make gains in falling markets. Market corrections happen as the confidence in the marketers waxes and wanes, and as investors chase market trends. Unlike bear markets, stock market corrections are often short, lasting around four months on average, and usually sort themselves out. When the price of a market continues to decline for a lengthy period of time, the market is considered to be in a bear market.
Definition and Examples of a Bear Market
The opposite of a bear market is a bull market, where assets, like a bull, are charging. Bear markets tend to be shorter than bull markets — 363 days on average — versus 1,742 days for bull markets. They also tend to be less statistically severe, with average losses of 33% compared with bull market average gains of 159%, according to data compiled by Invesco. NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances.
In the wake of the COVID-19 pandemic, the market showed steady improvements, with the DOW reaching a peak high of 36,799.65 on January 4, 2022. But shortly thereafter it began to fluctuate, with the Nasdaq entering a bear market in April and the S&P 500 following in June. As of June 13, 2022, the Dow was at 30,516.74, not yet 20% below its January high. Here’s more on what a bear market means, and steps you can take to make sure your portfolio survives (and even thrives) until the bear transforms into a bull. Our partners cannot pay us to guarantee favorable reviews of their products or services.
One important distinction is the difference between a bull market and a bear market rally. A bull market is a sustained uptrend in stocks — and one that typically results in new all-time highs being reached. The most common usage of the term is to refer to the S&P 500’s performance, which is generally considered a benchmark indicator of the entire stock market. Let’s take a look at the actual definition of a bear market, what causes a bear market to occur, the difference between a bull market and a bear market rally, and other key concepts investors should know.
bear market
As measured by the S&P 500, the last long-term bear market stretched from 2007 to 2009 during the Great Recession. The average length of a bear market is around 9.5 months and occur, on average, around 3.5 years apart from each other. It’s generally accepted by industry experts that there have been around 26 bear markets since 1929. It is also worth noting that the faster an index falls into bear market territory, the shallower they tend to be. A bear market often occurs just before or after the economy moves into a recession, but not always. We believe everyone should be able to make financial decisions with confidence.
The terms bear market and stock market correction are often used interchangeably, but they refer to two different magnitudes of negative performance. A correction occurs when stocks fall by 10% or more from recent highs, and a correction can be upgraded to a bear market once the 20% threshold is met. Economists define a bear market as a decline of 20% or more of a major stock market index, such as the DJIA or S&P 500, for a sustained period. A bear market is the opposite of a bull market, a period marked by market gains of 20% or more. This technique involves selling borrowed shares and buying them back at lower prices. It is an extremely risky trade and can cause heavy losses if it does not work out.
Hedge with bonds
Bear markets can certainly be scary times for investors, and nobody enjoys watching the value of their portfolios go down. On the other hand, these can be opportunities to put money to work for the long run while stocks are trading at a discount. The usual cause of a bear market is investor fear or uncertainty, but there are a multitude of possible causes. While the global COVID-19 pandemic caused the 2020 bear market, other historical causes have included widespread investor speculation, irresponsible lending, oil price movements, over-leveraged investing, and more. On average, bear markets occur every 3.5 years, usually lasting for several months. When the economy is on the back foot, investors tend to be pessimistic and stock prices decline.
JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. If you’re new to investing, a bear market can be a great time to customize a diverse investment portfolio and establish your financials goals. To the average investor, a bear market can be as terrifying as a seven-foot-tall grizzly. Bear markets can reveal the vulnerabilities in your investment portfolio and exacerbate them.
What is a bear market?
While bear markets signal a time of pessimism and economic decline, a bull market is defined by optimism and economic growth. A bull market is a period when stock prices are rising and investor sentiment is positive. A bear market should not be confused with a correction, which is a short-term trend that has a duration of fewer than two months. While corrections offer a good time for value investors to find an entry point into stock markets, bear markets rarely provide suitable points of entry. This barrier is because it is almost impossible to determine a bear market’s bottom.
To enter the technical bull market, India’s stocks are being joined by other Asian markets in the hope that the Indian government’s step will contain the stimulus package that will release the economic damage. Interest rates are one of the most dependable indications when it bear market definition comes to identifying whether or not a bear market is about to break out. In any case, when the Federal Reserve lowers interest rates in response to a slowing economy, it is a strong indicator that the market may be on the verge of entering a bear market shortly thereafter.
J.P. Morgan Private Client Advisor
An impending recession is still possible, especially with the lingering effects of the Silicon Valley Bank collapse in mid-March 2023, and the collapse of Signature Bank and the First Republic Bank shortly after. But some experts still remain optimistic that the market will continue to improve toward a bull market. Once they no longer have an active income stream, many people shift their investing strategies to preservation instead of growth. That generally means making your investments more conservative, or cash-, bond- and fixed-income-based, than you have before.
It is often used to describe a scenario in which the price of assets has fallen by at least 20% from recent highs as a consequence of a lack of investor confidence. It is also possible for bear markets to develop in combination with larger economic downturns, such as a recession. Prices continue to climb, and after stocks gain 20% or more, a bear market is considered over, and a new bull market begins. Most financial theorists agree that economic cycles and investor sentiment both play a role in triggering bull and bear markets.
- One important distinction is the difference between a bull market and a bear market rally.
- This movement can easily trick many investors into thinking the stock market trend has reversed and a new bull market has begun.
- 10 stocks that could be great buys for long-term investors looking to put their money to work.
- It’s worth stressing that a market top (or high) isn’t usually a dramatic event – it just means that the market has reached the highest point it will see for the foreseeable future.
Morgan online investing is the easy, smart and low-cost way to invest online. Whether you choose to work with an advisor and develop a financial strategy or invest online, J.P. Morgan offers insights, expertise and tools to help you reach your goals.
Other Products & Services:
But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. One thing to be cautious about is whether to sell everything to avoid more losses.