How long will this bear market last? Here’s what the story shows

Oofficially we’re in a bear market – that’s when stocks close 20% below their recent highs. The question every investor asks: how long will this bear market last?

Nobody really knows the answer. Sure, experts will try to predict (or guess), but those predictions will cover all possible outcomes, from a quick, painless recovery to an extended downturn the likes of which we’ve never seen before.

However, looking back tells us that this bear market will likely lie somewhere between those two extremes.

What History Says About Bear Markets

Since 1950 the S&P500 has fallen more than 20% on 11 occasions. Below are some interesting data points on these pullbacks, according to a new report from Yardeni Research (PDF).

  • The bear market of the early 2000s ran its course 929 days to reach its lowest point. That’s about two and a half years. This bear market came after the astounding rise in internet stocks in the late 1990s.
  • The second longest bear market started in 1973 and lasted 630 days to meet below. Inflation, slow economic growth and political unrest surrounding US President Nixon contributed to the downturn.
  • The bear market of the early 80’s continued 622 days before stocks started to rise again. Inflation also played a role here. The Fed took an aggressive stance against rising prices by raising the federal funds rate to a staggering 20%. A recession and high unemployment followed.
  • The shortest bear market in history was the 2020 downturn, prompted by pandemic-related shutdowns and uncertainty. Stock prices fell only for 33 days before returning to growth.
  • On average, not counting this current cycle, bear markets continue 388 days — or a little over a year.
  • Excluding the longest and shortest bear markets of 2000 and 2020, respectively, the average bear market duration is almost accurate a year.
  • There have only been three bear markets since 2000, not including this one. Two of the three have lasted longer than the one-year average.

Image source: Getty Images.

Investing in a bear market

Perhaps the most useful insight from history is that bear markets have always given way to bull markets. On the other hand, if you can avoid selling your holdings, or better yet, invest during the downturn, you are positioned for strong gains.

Admittedly, continuing to invest in a bear market is emotionally challenging, but you can make small changes to your investment approach to make it easier. For example:

  • If you’re short on cash savings, you can temporarily increase your emergency fund deposits. An additional liquidity cushion can help you not to reach into your portfolio when share prices are falling.
  • You may be leaning more towards dividend stocks than you have in the past. Whether you’re reinvesting your dividends or taking them in cash, you’ll appreciate the stability during a bear market.
  • You might reconsider your risk appetite. Barring dips in 2018 and 2020, the market has been strong for years. In bull markets it’s difficult to gauge how much risk you can handle – now is the time to ask that question. If you’re more aggressively invested than you’d like, you can gradually offset that risk by adding more conservative blue chip positions.

This bear market will also pass

Bear markets are always uncomfortable for investors. Luckily, as history proves, they are also temporary. You and your wealth can survive this cycle – often without changing your investment approach.

If you are forced to make changes, do so gradually. Avoid panic selling and large repositioning if you can. Patience will pay off because there should be another bull market in our future – and you want to enjoy your share of those big recovery gains.

10 Stocks We Like Better Than Walmart
When our award-winning team of analysts have an investment tip, it can be worth listening to. After all, the newsletter they’ve been running for over a decade is Motley Fool stock advisorhas tripled the market.*

They just revealed what they believe are the The ten best stocks for investors who can buy now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

Check out the 10 stocks

Stock Advisor returns as of 2/14/21

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Leave a Comment