What determines when a bear market is over?
Watch for 20%: Market cycles are measured from peak to trough, so a stock index officially reaches bear territory when the closing price drops at least 20% from its most recent high (whereas a correction is a drop of 10%-19.9%). A new bull market begins when the closing price gains 20% from its low.
It defines a bear market as a decline of at least 20% in the S&P 500 from its previous peak. It ends when the index reaches its low before then going on to set a new high. S&P uses closing prices for its calculations. Bull markets in both stocks and bonds are far more common than bear markets.
The duration of bear markets can vary, but on average, they last approximately 289 days, equivalent to around nine and a half months. It's important to note that there's no way to predict the timing of a bear market with complete certainty, and history shows that the average bear market length can vary significantly.
During a bear market, investors often seem to ignore any good news and keep selling investments, which pushes prices even lower. Eventually, investors begin to find stocks attractively priced and start buying, officially ending the bear market.
In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull markets.
After a spectacular 2023, stocks are off to the races again in 2024. YTD, the Dow is up 2.72%, the S&P is up 7.28%, and the Nasdaq is up 6.41%. (And that's on top of last year's 13.7%, 24.2%, and 43.4% respectively.)
If we take the 289-day average for bear markets into account, the S&P bear market could end in March 2023, and the S&P 500's could end in July next year. Of course, like all things stock market, there is a ton of uncertainty around the bear market, and it's impossible to predict when it will end for sure.
That depends on how soon you'll need the money you've invested. Government bonds and defensive stocks historically perform better during a bear market. However, most people investing for the long term shouldn't be aggressively tweaking portfolios every time there is a sell-off.
Don't try to catch the bottom: Trying to time the market is generally a losing battle. One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy.
Here are some key stats from Dow Jones Market Data: - $S&P 500 Index(. SPX.US)$ had been in bear-market territory for 248 trading days; the longest bear market since the 484 trading days ending on May 15, 1948. - Excluding this most recent bear market, the average bear market lasts 142 trading days.
How do traders make money in a bear market?
As a trader, you'll short-sell when you expect a market's price will fall. If you predict this correctly and the market you're trading on does decline in value, you'll make a profit. If the price rises instead, you'll make a loss.
dot-com crash in March 2000 is technically the longest (a drop of 19.9% in 1990 nearly derailed that bull, but just missed the bear threshold). markets, or one about every 1.5 years. Since 1945, there have been 15βone about every 5.1 years.
Wall Street Crash of 1929
Stock prices dropped first on the 24th, briefly rallied β and then went into free fall on October 28-29. The Dow Jones Industrial Average dropped 25% in those days in an event known as Black Tuesday. Ultimately, the market lost 85% of its value.
Third, many Wall Street analysts predict that the S&P 500 will jump in 2024, but with a lower return than last year. Sure, they're guessing, just as I am. However, they think that moderating inflation and the potential for interest rate cuts should be good for stocks.
Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year. The healthcare sector is expected to generate a market-leading 17.8% earnings growth in 2024, while the information technology sector is expected to lead the way with 9.3% revenue growth.
Stock | Expected Change in Stock Price* |
---|---|
Tesla Inc. (TSLA) | 61% |
Mastercard Inc. (MA) | 14.2% |
Salesforce Inc. (CRM) | 7.2% |
Advanced Micro Devices Inc. (AMD) | 11.3% |
Key Takeaways. While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
In almost every case, the S&P 500 has bottomed out roughly four months before the end of a recession. The index typically hits a high seven months before the start of a recession. During the last four recessions since 1990, the S&P 500 declined an average of 8.8%, according to data from CFRA Research.
All of these factors combine to create an environment where stock prices are more likely to go down than up β at least, for the time being. Of course, there are exceptions to every rule. While the stock market will generally decline during a recession, there are always going to be some companies that perform well.
While there is no one-size-fits-all number when it comes to how much cash investors should hold, financial advisors typically recommend having enough money to cover three to six months of expenses readily available.
Where do you put money in a bear market?
A potential strategy in a bear market (or any market) is to buy and hold stocks from major index funds like the S&P 500. Data from Crestmont Research shows that S&P 500 returns in any 20-year period from 1919 to 2022 were positive.
Name | Ticker | Industry Description |
---|---|---|
Walmart Inc. | NYSE: WMT | Consumer Staples |
AbbVie Inc. | NYSE: ABBV | Biopharmaceuticals |
Johnson & Johnson Inc. | NYSE: JNJ | Healthcare Products |
T-Mobile US Inc. | NASDAQ: TMUS | Information Technology |
Gold is historically a safe and stable investment that can protect you in times of economic and geopolitical uncertainty. Its price holds up well during times of high inflation and high interest rates, and sees increased demand and price appreciation during traditional equity bear markets rather than bull markets.
The Bear Market of 2007-2009: Global Financial Crisis
The bear market that began in October 2007 is the most severe bear market in the history of the S&P 500. It emerged from the bursting of the subprime mortgage bubble and the global financial crisis.
- The Crash of 1929, which eventually ushered in the Great Depression,
- The Oil Embargo of 1973, which was followed by a vicious bout of stagflation,
- The Tech Bubble crash and,
- The Financial Crisis following the (then) record high in October 2007.
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