Looking at history can help you become "bear aware."
Fidelity Viewpoints
Key takeaways
- A bear market is commonly defined as a decline of at least 20% from the market's high point to its low.
- Bear markets are a normal part of investing.
- Bear markets have historically varied in length but stock markets have always recovered from them.
A bear market is commonly defined as a decline of at least 20% from the market's high point to its low during a selloff and the drop from a near-record high on January 1 to bear country has been steep and deep. That drop, though, doesn’t change the fact that bear markets are a normal part of investing and have historically appeared every 6 years on average.
Bear markets—like bull markets—can be either cyclical or secular. Cyclical bear markets arise when investor sentiment turns negative and typically last weeks or months. Secular markets are those driven by long-term trends such as the direction of interest rates or corporate earnings, rather than by the phases of the business cycle, and they may continue for many years despite even severe short-term interruptions. Secular bulls are characterized by prices rising over the long term despite occasional corrections and short-lived bear markets. Secular bear markets are the opposite—long-term price declines punctuated by occasional market rallies.
Jurrien Timmer, director of global macro in Fidelity's Global Asset Allocation Division points out that the secular bull market that ran from 1982 to 2000 was interrupted by a market downturn in 1987 which took the S&P 500 33% lower. "I remember clearly that many people were bracing for a depression, which of course never happened," he says. "A year or two later, the market was making new highs, and this continued for another decade or so until the peak in 2000."
Sign up for Fidelity Viewpoints weekly email for our latest insights.
Subscribe now
Corrections versus bears
In short-term corrections where stocks drop by as much as 10%, buyers tend to quickly appear to take advantage of lower prices because they expect stocks to rise again soon. But bear markets are characterized by a shift in investors’ expectations from confidence that the economy will grow and stocks will rise to skepticism about growth and doubts about the direction in which markets may move.
Uncertainty about whether stock prices will rise or fall can make investors more likely to sell stocks than buy. That sentiment may cause prices to continue to decline and lead to a prolonged period of low returns on the stock allocations in investors’ portfolios. Bear markets also pose risks for those who unwisely attempt to "time the market" by selling stocks when prices are falling or buying them at what they often wrongly believe is a market bottom.
What history tells us about bears
While bear markets are historically shorter-lived than bull markets, both are regular parts of investing. US stocks have endured 26 bear markets in the past 150 years. History shows that bears appear with steep drops in stock prices, but their behavior after their arrival varies in terms of how long they stay. Some bear markets have lasted for years. Others, like the one in 2020, lasted a few months. Most have been accompanied by economic recessions, but not all.
Tracking the bears
Source: Fidelity Investments. Past performance is no guarantee of future results. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation. S&P and S&P 500 are registered service marks of Standard & Poor's Financial Services LLC. The CBOE Dow Jones Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. You cannot invest directly in an index.
What causes a bear market?
Financial markets move up and down based on a variety of factors. These include investors’ expectations about how much money companies may earn or how quickly or slowly the economy may grow. As companies report second quarter earnings, the results will likely play a significant role in attracting or chasing away bears. A bear market, though, is fed by a variety of sources, including how effective policymakers are in managing inflation and geopolitical risks. ”Inflation and what the Fed does about interest rates, the Ukraine conflict, and China’s COVID policies will have the most material impact on investing in the second half of the year,” says veteran Fidelity portfolio manager Ford O’Neil.
The psychological effect of anxiety-inducing news headlines may help feed the bear. Anxious, inexperienced investors may feel a strong urge to sell assets when they hear the term "bear market." If panic-driven selling becomes widespread, markets can become more volatile and take longer to recover than fundamental factors suggest they otherwise would.
What can I do about a bear market?
While it is impossible to know which direction the market will move in the near term, selling assets into a bear market is almost never a good idea. Talking to your financial professional can help ensure that your current asset allocation is appropriate to meet your long-term objectives regardless of the present market environment. While the decline in stock prices may require you to rebalance your portfolio, if you have a well-diversified mix of assets such as stocks, bonds, and cash that is consistent with your investment time frame, financial situation, and risk tolerance, bear markets should not be a reason for you to deviate from your financial plan.
Like a hiker passing through the Rockies, becoming "bear aware" can help increase your peace of mind despite the risks that may exist.
Let's work together!
We can help you create a plan for any kind of market.
More to explore
Analyze your portfolio and create a clear plan of action.
Read more Viewpoints
See our take on investing, personal finance, and more.
Timely news and insights from our pros on markets, investing, and personal finance.
Looking for more ideas and insights?
We'll deliver them right to your inbox.
Thanks for subscribing!
Check out your Favorites page, where you can:
- Tell us the topics you want to learn more about
- View content you've saved for later
- Subscribe to our newsletters
We're on our way, but not quite there yet
Good news, you're on the early-access list.
But we're not available in your state just yet. As soon as we are, we'll let you know. In the meantime, boost your crypto brainpower in our Learning Center.
Oh, hello again!
Good news, you’re already on the early-access list. Keep an eye on your email for your invitation to Fidelity Crypto.
Thanks for subscribing to
Looking for more ideas and insights?
You might like these too:
Looking for more ideas and insights? You might like these too:
Fidelity Viewpoints®
Timely news and insights from our pros on markets, investing, and personal finance.Decode Crypto
Clarity on crypto every month. Build your knowledge with education for all levels. Fidelity Smart Money℠
What the news means for your money, plus tips to help you spend, save, and invest.Active Investor
Our most advanced investment insights, strategies, and tools. Insights from Fidelity Wealth Management ℠
Timely news, events, and wealth strategies from top Fidelity thought leaders.Women Talk Money
Real talk and helpful tips about money, investing, and careers.Educational Webinars and Events
Free financial education from Fidelity and other leading industry professionals.