How Long the Bear Market Last

For one who is conversant with investing in the stock market, the bear market and bull market should not be something that appears to be mysterious.

When the market period is clearly understood, it can go a long way in guiding your investment decisions.

Many investors are terrified when they hear "bear market". But, unlike the duration of bull markets, when the market is gaining in value, these profound market downturns are unavoidable and often quite brief.

Even in bear markets, there are fantastic investing possibilities.

What is a Bear Market?

A bear market occurs when a market's price decreases for an extended period of time. It usually refers to a situation where stock values have fallen 20% or more from recent highs due to widespread uncertainty and poor investor confidence.

Individual assets or commodities can be classified in a bear market if they lose 20% or more over a significant period of time two months or more.

Bear markets can also occur in conjunction with broader economic downturns, such as a recession. Bear markets can be compared with bull markets that are heading upward.

Individual companies, as well as markets as a whole, such as the Dow Jones Industrial Average or the S&P 500, can experience bear markets.

While 20% is the cutoff, bear markets frequently fall much further than that over time, but that doesn't happen all at once. Though there are a few relief rallies here and there, the overall trend is downward.

Investors soon discover affordably priced equities and begin buying, thus ending the bear market.

Investors' pessimism and lack of confidence characterize bear markets. During a bear market, investors appear to disregard any positive news and continue selling aggressively, driving prices farther lower.

Though investors may be bearish on a single stock, this may not have an impact on the overall market.

When the market goes bearish, practically all stocks inside it fall, even if they're reporting excellent news and expanding earnings individually.

Causes of a Bear Market 

A bear market occurs frequently shortly before or after the economy enters a recession.

To determine whether the economy is slowing, investors closely monitor important economic indicators such as hiring, wage growth, inflation, and interest rates. Some of the signs were different in the instance of the COVID-19 pandemic.

Closures on a large scale for different companies, increases in jobless claims, and social distancing measures were all signs that the economy was in crisis.

Investors expect business profits to fall in the near future as the economy is contracting. As a result, they sell equities, causing the market to fall. A bear market may portend higher unemployment and more difficult economic circumstances ahead.

Bear markets are caused by a variety of events, including a poor or lagging or sluggish economy, bursting market bubbles, pandemics, wars, geopolitical crises, and significant paradigm shifts in the economy, such as changing to an internet economy.

Low employment, low discretionary income, weak productivity, and a reduction in corporate earnings are all symptoms of a weak or deteriorating economy. 

Furthermore, any government interference in the economy can set off a bear market.

How long does a Bear Market last?

Bear markets might span several years or only a few weeks. A secular bear market can last anywhere from ten to twenty years and is defined by consistently low returns.

Within secular bad markets, there may be rallies in which stocks or indexes rise for a time, but the gains are not prolonged, and prices retreat to lower levels.

In contrast, a cyclical bear market might run anywhere from a few weeks to many months.

Bear markets are often shorter than bull markets, lasting 363 days on average against 1,742 days on average.

According to data gathered by Invesco, they are also statistically less severe, with average losses of 33% compared to bull market average profits of 159%.

The coronavirus bear market, which began on March 11, 2020, quickly transitioned to a bull market, while the virus's entire economic impact has been yet discovered.

Bear markets typically continue longer than market corrections.

During the Great Depression, the S&P 500 experienced its longest bear market, which lasted 2.8 years. The longest bear market since the 1950s occurred in the early 2000s when the dot.com bubble burst. It lasted for 2.1 years.

Bear Market Phases

• High pricing and positive investor optimism characterize the first phase. Investors begin to exit the markets and grab profits at the end of this phase.

• In the second phase, stock prices begin to fall significantly, trading activity and corporate profits begin to decline, and previously optimistic economic indicators begin to deteriorate. As investor confidence begins to drop, some investors become nervous. Capitulation is the term for this.

• Speculators begin to enter the market in the third phase, boosting some prices and trading volume.

• Stock prices continue to fall in the fourth and final phase but at a slower pace. Bear markets are giving way to bull markets as low prices and positive news entice investors again.

What is Capitulation?

In finance, capitulation refers to a sudden increase in selling pressure in a sinking market or securities, signaling a mass exit by investors.

Because individuals who did not sell during the panic are doubtful to do so soon after, the subsequent steep drop in market prices can signal the end of a collapse.

Capitulation usually occurs after big price drops, which can occur even when many investors remain bullish.

As the downturn worsens, investors who don't want to lose any more money begin to sell, resulting in a catastrophic price drop.

Bear Markets and Corrections

A correction, which is a short-term movement lasting less than two months, should not be mistaken for a bear market.

While corrections provide a wonderful opportunity for value investors to enter the stock market, bear markets hardly provide such opportunities.

This barrier exists because determining the bottom of a bear market is extremely difficult.

Unless investors are short-sellers or utilize other tactics to profit in declining markets, recouping losses can be a difficult task.

Instances of a Bear Market

The Dow Jones Industrial Average (DJIA) had around 33 bear markets between 1900 and 2018, with one every three years on average.

Between October 2007 and March 2009, one of the most noteworthy bear markets in recent times occurred with the global financial crisis.

The Dow Jones Industrial Average (DJIA) fell 54% over that time.

The most recent 2020 bear market for the S&P 500 and DJIA was sparked by the global COVID-19 pandemic.

Fears of a war in Ukraine, international sanctions against Russia, and soaring inflation pushed the Nasdaq Composite into a bear market in March 2022.

On May 20, 2022, the S&P 500 entered a bear market, losing 20% from its previous peak in January 2022.

Conclusion

Bear markets can be excruciating, but they are usually brief. While it may appear that selling during a bear market is simple, even for specialists, timing the market is impossible.

This means that the most essential thing an investor can do is select high-quality investments with the purpose of holding them for the long term, while maintaining a close eye on positions that may require extra attention, such as growth stocks and likely volatile stocks.