As we write to you today, the S&P 500 closed in bear market territory, down 21% from recent highs earlier this year. We undoubtedly find ourselves amid a challenging environment. Ongoing concerns surrounding the war in Ukraine, rising costs of food and fuel (inflation), continued supply chain issues, lock downs in China and interest rate increases, are intensifying the expectations of a potential recession and negatively impacting financial markets.
We know these are tough times and while going through them can seem daunting, we also know that we can get through them together. In that spirit, we believe it is very helpful to understand some history around bear markets.
- What is a Bear Market? A bear market is when a broad index, such as the S&P 500, falls 20% or more from its peak.
- Bear Markets Are Normal. Bear markets are a normal part of investing. There have been 26 bear markets in the S&P 500 index since 1928. Bear markets have been less frequent since World War II, having occurred roughly every five years.
- Shorter Than You Think. While a bear market usually feels like it lasts forever, the average length of a bear market is just 10 months.
- A Bear Market Doesn’t Necessarily Mean a Recession. Bear markets often go hand in hand with a slowing economy, but a declining market doesn’t necessarily mean a recession is looming. While there have been 26 bear markets since 1928, there have only been 15 recessions.
- Stocks Returns Are Challenging. On average, stocks lose 36% in a bear market. However, stocks gain 114% on average during a bull market.
- But Timing Is Tough. Half of the S&P Index’s strongest days in the last 20 years occurred during a bear market. Another 34% of the market’s best days took place in the first two months of a bull market — before it was clear a bull market had begun.
Hopefully, these insights give you solace that there is a light at the end of the tunnel. As you can see, bear markets have happened throughout history, and they will continue to occur in the future. And while these are the times when it is most difficult to stay the course, focusing on your long-term plan and making sound decisions will give you the greatest chance for success.