How Long a Bear Market Last?

•  Shai.Gal

•  Oct 24 2022
 

How often does a bear market appear on Wall Street, can it be anticipated and what are the important tips for dealing with it?

A bear market is defined as a decline of 20% or more from the peak levels of one or more of the two leading indices on Wall Street. Currently, it is the P&S 500 and the Nasdaq index. As we will soon see, bear markets are not a rare event on Wall Street, but neither are they something that happens every two months. In fact, from the beginning of the third millennium until today, we count only four times when the US market entered bearish territory, including the latter.

Try to create as wide a spread as possible in your investment portfolio both at the sectoral level and at the geographical level, which will allow you to reduce risks.

From 1929 until today, Wall Street has recorded 21 times of entering a bear market, with a maximum loss of approximately 83% of the market value between October 1930 and January 1932).

Entering a bear market is an event that occurs on average every 4.4 years, at a time that is very difficult to predict in advance. This is of course unpleasant for investors who are inside the market at the beginning of the bear market, but certainly not a reason to panic either, although it is a clear signal to take steps to reduce losses, perhaps also to carefully locate investment opportunities.

It is important to emphasize: despite the similarity in the lower threshold of the declines in bear markets, they differ from each other in their characteristics, their strength, their influence on such and other stocks and as mentioned - also in the strength of the exit from them. The previous two times the US stock market went into a bear market before the corona virus, it lasted much longer, with bigger declines.

Last week the S&P 500 index recorded a low point since the beginning of the year, and the Dow Jones also entered, for the first time in this crisis, into bearish territory • Three senior economists analyze: will the negative trend continue, how does it look compared to the previous times, and how to protect the investment portfolio

Last week the S&P 500 index recorded a low point since the beginning of the year, and the Dow Jones also entered, for the first time in this crisis, into bearish territory • Three senior economists analyze: will the negative trend continue, how does it look compared to the previous times, and how to protect the investment portfolio

If you are looking for an optimistic point, according to history every bear market is followed by a bull that pushes the indices to new highs. Sometimes it happened quickly and sometimes it took a few years, but it always happened.

The main reason for the sharp declines is the attempt by the central banks around the world, led by the Fed, to deal with rising inflation by raising interest rates.

When talking about a bear market, beyond the unique characteristics of each such event - there is also something in common. Over the years there has been great variation in the length and depth of bear market events. For example, the steepest fall, a drop from peak to trough of almost 57%, occurred in the 17 months that followed the financial crisis of 2007-2009.

The longest bear market lasted almost 21 months, in the years 1974-1973, during which a decrease of about 48% from the record was recorded. The shortest bear market is also the closest - a 34% drop with the outbreak of the Corona epidemic between February and March 2020.

If the process of reducing inflation has already started, and it will start to decrease at the beginning of next year, this is exactly the change that the markets are looking for and we may see them take advantage of this for gains.

There are many, many places, sub-sectors, stocks and companies that were more affected by the sweeping decline in markets around the world, and where there were more declines there are also opportunities

There are companies that with high liquidity and good results can handle the bear market better, especially in areas such as IT, power generation and infrastructure and that technology is still recommended, and also be in sectors that are more solid, such as health and infrastructure, which are very stable.

Do you have any thoughts on when the bear market will finally ends?
We'd love to hear in the comments below.

• Inflation
 
 

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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