- The S&P 500 Index closed in “bear market” territory on Monday for the first time since March 2020.
- A bear market is a decline of 20% or more from recent highs. It’s symbolic psychological hurdle for investors that often portends a recession.
- Wall Street is spooked the Federal Reserve will be more aggressive than previously thought to cool inflation, perhaps triggering an economic downturn.
There isn’t anything particularly special about the 20% demarcation line used to define a bear market. It’s more a symbolic psychological hurdle for investors. It often portends — but doesn’t cause — a recession.
“It’s a shortcut in language around the financial markets that people use,” Charlie Fitzgerald III, an Orlando, Florida-based certified financial planner, said of bear markets. “The bottom line is, it’s a tough time.”
By comparison, a “bull market” is a period when stocks are surging, which has largely been the case since the Great Recession.
Human emotions are just a difficult thing to predict.Charlie Fitzgerald IIIOrlando, Florida-based certified financial planner
Bear markets are a periodic feature of the stock market. Since World War II, there have been nine declines of 20% to 40% in the S&P 500, and three others of more than 40%, according to Guggenheim Investments. (The analysis doesn’t include 2022.)
On average, stocks took 14 months and 58 months to recover, respectively, after those declines. The S&P 500 slid 34% from Feb. 19 to March 23 in 2020; stocks recovered by mid-August and ultimately swelled 114% through Jan. 3, 2022, the recent record, according to S&P Dow Jones Indices.
It’s impossible to say how long the current downturn will last, Fitzgerald said. “Human emotions are just a difficult thing to predict,” he said.
