On Walk 11, 2020, the Dow Jones Industrial Average (DJIA) entered a bear market for the first time in 11 years, be defeated from all-time highs—approaching 30,000—to under 19,000 in just a few short weeks, amid the economic changes of the global coronavirus (Covid-19) pandemic. The next day, March 12, 2020, the S&P 500 and the Nasdaq followed suit. The hold up market in U.S. equities in 2020 may be one of the most severe bear markets in history.
Key Takeaways
- Bear markets are defined as steady periods of downward trending stock prices, often triggered by a 20% decline from near-term highs.
- Sustain markets are often accompanied by an economic recession and high unemployment, but bear markets can also be great buying chances while prices are depressed.
- Some of the biggest bear markets in the past century include those that synchronized with the Great Depression and Great Recession.
- The bear market that began on March 11, 2020 was brought on by varied factors including the spread of the COVID19 pandemic.
When the Bear Comes
One definition of a bear market says bazaars are in bear territory when stocks, on average, fall at least 20% off their high. But 20% is an arbitrary thousand—just as a 10% decline is an arbitrary benchmark for a correction.
Another definition of a bear market is when investors are sundry risk-averse than risk-seeking. This kind of bear market can last for months or years, as investors shun risks in favor of boring, sure bets.
Several leading stock market indexes around the globe endured encourage put up with market declines in 2018. In the U.S., in December 2018, the small-cap Russell 2000 Index (RUT) bottomed out 27.2% below its ex high. The widely-followed U.S. large-cap barometer, the S&P 500 Index (SPX), just missed entering bear market territory, stumbling its decline 19.8% below its high.
Similarly, oil prices were in a bear market from May 2014 to February 2016. During this patch, oil prices fell continually and unevenly until they reached a bottom.
Bear markets can happen in sectors and in the broadest customer bases. The longest time horizon for investors is usually the time between now and whenever they will need to liquidate their investments (for exempli gratia, during retirement), and over the longest-possible term, bull markets have gone higher and laster longer than have markets.
Bears of All Shapes and Sizes
Bear markets have come in all regulates and sizes, showing significant variation in depth and duration.
The bear market that started in March of 2020 rather commenced due to a number of factors, including shrinking corporate profits and, possibly, the sheer length of the 11-year bull market that preceded it. The knee-jerk cause of the bear market was a combination of persistent worries about the effect of the Covid-19 pandemic on the world economy and an disturbing price war in oil markets between Saudi Arabia and Russia that sent oil prices plunging to levels not seen since the blow up of the dotcom bubble in 2000, September 11, 2001, and the second Gulf War.
Between 1926 and 2017, there have been eight transport markets, ranging in length from six months to 2.8 years, and in severity from an 83.4% drop in the S&P 500 to a ebb of 21.8%, according to an analysis by First Trust Advisors based on data from Morningstar Inc. The correlation between these corroborate markets and recessions is imperfect.
This chart from Invesco traces the history of bull and bear markets and the portrayal of the S&P 500 during those periods.
At the end of 2019, analysts suspected a bear market might be coming, but they were allotted on its duration and severity. For example, Stephen Suttmeier, the chief equity technical strategist at Bank of America Merrill Lynch, denoted he believed there would be a “garden-variety bear market” that would last only six months, and not go much beyond a 20% dip. At the other end of the spectrum, hedge reserve manager and market analyst John Hussman predicted a cataclysmic 60% rout.
Bear Markets Without Slumps
Three of the eight bear markets listed above were not accompanied by economic recessions, according to FirstTrust. These counted brief, six-month pullbacks in the S&P 500 of 21.8% in the late 1940s and 22.3% in the early 1960s. The stock market bang of 1987 is the most recent example, which was a 29.6% drop lasting only three months, according to Outset Trust.
Concerns about excessive equity valuations, with selling pressures exacerbated by computerized program return, are widely recognized as the trigger for that brief bear market.
Bear Markets Before Recessions
In three other tote markets, the stock market decline began before a recession officially got underway. The dotcom crash of 2000 to 2002 also was prompted by a loss of investor confidence in stock valuations that had reached new historic highs.
The S&P 500 tumbled by 44.7% throughout the course of 2.1 years, punctuated by a brief recession in the middle. Stock market declines of 29.3% in the late 1960s and 42.6% in the at cock crow 1970s, lasting 1.6 years and 1.8 years, respectively, also began ahead of recessions, and ended before long before those economic contractions bottomed out.
Some of The Nastiest Bear Markets (So Far)
The two worst bear markets of this era were unmercifully in sync with recessions. The Stock Market Crash of 1929 was the central event in a grinding bear market that lasted 2.8 years and sliced 83.4% off the value of the S&P 500.
Wild speculation had created a valuation bubble—and the onset of the Great Depression, itself caused partly by the Smoot-Hawley Tariff Act and partly by the Federal Restriction’s decision to rein in speculation with a restrictive monetary policy—only worsened the stock market sell-off.
The sustain market from 2007 to 2009 lasted 1.3 years and sent the S&P 500 down by 50.9%. The U.S. economy had passed into a recession in 2007, accompanied by a growing crisis in subprime mortgages, with increasing numbers of borrowers impotent to meet their obligations as scheduled. This eventually snowballed into a general financial crisis by September 2008, with systemically grave financial institutions (SIFIs) across the globe in danger of
The Bottom Line
The most recent bear market is a amalgam of a global health crisis, compounded by fear, which has triggered a wave of layoffs, corporate shutdowns, and financial disruptions. But, we order get through this—this is not the first bear market that we’ve experienced. As noted above, the methods for measuring the stretch and magnitude of bull and bear markets alike differ among analysts. According to criteria employed by Yardeni Experimentation, for example, there have been 20 bear markets since 1928. This bear market settle upon almost certainly not be the last, either.