What is a Bear Market & How Long Does it Last

What is a bear market?

In the stock market, a "bear market" is typically defined as a period of prolonged decline in stock prices, generally characterized by a downward trend of at least 20% from recent highs. During a bear market, investor sentiment is generally pessimistic, and there’s a prevailing atmosphere of fear, uncertainty, and selling pressure. Bear markets often coincide with worsening economic conditions, such as a slowdown in gross domestic product (GDP), declining corporate earnings, and/or geopolitical instability. These conditions often lead to reduced confidence in financial investments.

Bear markets can be triggered by various factors, including economic recessions, financial crises, geopolitical tensions, or changes in monetary policy. They are often accompanied by heightened market volatility, increased trading volumes, and broad-based declines across multiple sectors and asset classes. 

In a bear market, some investors and traders adopt defensive strategies, such as reducing exposure to equities, seeking refuge in so-called “safe haven” assets, or implementing hedging tactics to protect their portfolios from downside losses. Bear markets can present significant challenges for investors, but they can also offer opportunities. For example, by purchasing high quality stocks at discounted prices. 

How long do bear markets last?

Bear markets can vary widely in duration, and there is no fixed timeline for how long they typically last. The duration of a bear market depends on various factors, including the underlying cause(s) of the market decline, the state of the underlying economy, and the effectiveness of policy responses. Some bear markets may be relatively short-lived, lasting only a few months, while others may persist for multiple years. 

Historically, bear markets have ranged in duration from several months to several years. For example, the bear market during the global financial crisis of 2008-2009 lasted approximately 17 months, from October 2007 to March 2009. On the other hand, the bear market that followed the bursting of the dot-com bubble in 2000 lasted about 30 months, from March 2000 to October 2002. 

While it's difficult to predict the exact duration of a bear market, investors should be prepared for the possibility of extended periods of market downturns and volatility. Diversification, risk management, and a long-term investment perspective are essential when navigating bear markets. 

It's important to note that bear markets are typically characterized by a series of both declines and rallies, as opposed to a continuous downward trend. Additionally, the duration of a bear market will be heavily influenced by a wide range of factors, including government intervention, central bank policies, economic stimulus measures, and overall market sentiment.

Bear market history

In terms of historical context, there have been 13 major bear markets in the United States stock market since the year 1946. Of those 13 bear markets (listed below), only three of them did not coincide with an economic recession (1962, 1987 and 2022). The data below highlights the month/year of the market bottom, as well as the associated percent decline in the S&P 500 at its lowest point. 

Bear Markets

  • May 1946 (-21%)
  • June 1948 (-20%)
  • October 1957 (-21%)
  • June 1962 (-28%)
  • October 1966 (-22%)
  • May 1970 (-36%)
  • October 1974 (-48%)
  • August 1982 (-27%)
  • December 1987 (-33%)
  • October 2002 (-49%)
  • March 2009 (-57%)
  • March 2020 (-34%)
  • June 2022 (-24%)

Can you profit from a bear market?

It is possible to profit from bear market conditions in the financial markets, just as it is possible to profit during bull markets. Amidst bear markets, some investors with long-term time horizons seek to buy high-quality stocks at discounted prices, hoping for a rebound when sentiment improves. 

How to trade and invest in a bear market?

Investors and traders typically call on their past experience, as well as their current outlook, to craft strategies and approaches that will profit in a bear market. It’s important to note that many investors and traders use elements of different disciplines, not just a single discipline, when trading bear markets.

Listed below are some of the common strategies used during bear markets. It’s important to note, however, that most investors and traders will implement their own unique approach based on their own preferred trading style, outlook, and risk profile. 

  • Short Selling: Short selling involves borrowing shares of stock from a broker and selling them on the open market with the intention of buying them back at a lower price in the future. Short sellers profit from declines in stock prices during bear markets by selling high and buying low.

  • Defensive Sector Rotation: In a bear market, some investors and traders rotate their holdings into defensive sectors that are less sensitive to economic downturns, such as consumer staples, healthcare, utilities, and telecommunications. These sectors tend to perform relatively well during bear markets due to their stable earnings and dividend yields.

  • Safe-Haven Assets: In bear markets, investors and traders sometimes seek refuge in safe-haven assets such as government bonds, gold, and cash equivalents. These assets can provide stability and liquidity, while also potentially offering protection against stock market volatility and downward price action in the stock market. 

  • Volatility Trading: Traders may capitalize on heightened market volatility during bear markets by trading volatility products such as options, futures, or exchange-traded funds (ETFs) that track market volatility indexes like the CBOE Volatility Index (VIX). 

  • Dividend Investing: Dividend-paying stocks can provide a source of income and stability during bear markets. As such, some investors and traders choose to focus on high-quality dividend stocks with strong fundamentals and sustainable dividend yields when bear market conditions materialize. 

  • Value Investing: Value investors typically look for opportunities to purchase fundamentally sound stocks that are trading below their intrinsic value. In bear markets, value investors therefore seek out undervalued companies with solid fundamentals, strong balance sheets, and competitive advantages, anticipating that their stock prices will eventually recover as market sentiment improves.

  • Hedging Strategies: In bear markets, some investors and traders use hedging strategies to try and protect their portfolios against downside risk. These strategies can help mitigate losses, by generating gains that can help offset losses in other areas of the portfolio. 

Bear market vs recessions: what is the difference?

Bear markets are typically defined as periods in which stock prices experience prolonged and severe declines. Generally speaking, bear markets are characterized by a decline of at least 20% from recent highs. 

In contrast, a recession refers to a contraction in economic activity. Recessions are typically defined as two consecutive quarters of declining GDP growth. Recessions are typically characterized by falling consumer spending, reduced industrial output, and rising unemployment. 

Bear markets are often accompanied by recessions, because negative sentiment from the economy otten spills over into the stock market. Of the 13 major bear markets that have occurred since 1946, 10 of those were accompanied by economic recessions. 

Bear market vs bull market: what is the difference?

When describing trends and sentiment in the financial markets, investors and traders often refer to bull markets and bear markets. Generally speaking, bull markets reflect optimism and upward price trends, while bear markets reflect pessimism and downward price trends.

During a bull market, investor confidence tends to soar, leading to increased buying activity and a sustained upward trend in prices. In a bear market, prices tend to trend lower, reflecting widespread pessimism in the financial markets. Bear markets also tend to exhibit elevated volatility. 

Bear market key takeaways

A bear market is a term used in finance to describe a sustained period of declining stock prices, typically marked by a decrease of 20% or more from recent market highs. During a bear market, investor sentiment often turns pessimistic, triggering widespread selling and a downward trend in prices. This negative sentiment can be driven by various factors, such as concerns about economic growth, geopolitical tensions, or uncertainty about corporate earnings. 

Bear markets can vary in duration and severity, ranging from relatively short-lived corrections to prolonged downturns lasting several months or even years. The onset of a bear market often coincides with a contraction in the economy, although not all bear markets are accompanied by recessions/depressions. Of the 13 major bear markets that have occurred since 1946, 10 of those were accompanied by an economic recession.

Bear markets can be challenging for many investors, because declining stock prices erode the value of their portfolios and amplify the risk of potential investment losses. Moreover, negative sentiment can lead to panic selling, and consequently exacerbate market declines. However, bear markets can also present opportunities. Value investors, for example, might view a bear market as an opportunity to purchase quality assets at discounted prices, with the expectation of future appreciation when market conditions improve.

Successfully navigating a bear market requires discipline, patience, and a long-term investment perspective. Investors should resist the temptation to make impulsive decisions during a bear market, and instead focus on maintaining a diversified portfolio aligned with their investment objectives and risk tolerance. 

While bear markets can be challenging, they are a natural part of the market cycle, and history has shown that markets tend to recover and eventually rebound in the wake of a bear market. By staying informed, maintaining a balanced approach, and remaining focused on long-term goals, investors can weather bear markets, and position themselves for long-term success in the markets.  

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.