A bear market? Didn't we just have one of those?
Yes, it was two years ago that U.S. indexes dove at record speed into bear markets when investors feared the worst of the COVID-19 pandemic and the ensuing global shutdown.
What touches off bear markets varies from era to era, but at their core is often a cloudy or gloomy outlook that makes investors worry corporate earnings will tumble and drive down companies' overall value.
Get enough of these reeling valuations together in a group of stocks such as the Standard & Poor's 500 and you could end up with a bear market – defined as a drop of 20% or more from a closing high.
Bear Market: What you need to know and how you should treat your finances
Investors fear that as the Federal Reserve attempts to bring inflation down from its 40-year high, it will slow the economy too much, sapping consumer spending and business profits.
Definition of bear and bull market
The S&P 500 fell into bear territory Monday, making it the second of the three major U.S. indexes to hit bear market levels this year. The Nasdaq entered a bear market March 7, and the Dow Jones Industrial Average is a bad day or two away.
Though the outlook might be unsettled for businesses, that doesn't mean a recession (two quarters of declining economic growth) is imminent.
According to Gallup, about three out of five Americans own stock and can be directly affected when the market swoons. Even if they don't sell any shares, the perceived loss of wealth could lead them to hold off on purchases such as a new car or a trip, which could contribute to a recession.
Since 1929, there have been nearly twice as many bear markets as recessions in the USA. Nine of those bear markets occurred around the Great Depression and the recession that followed.
Regardless of what investors are bracing for in the weeks and months ahead, the U.S. economy is humming with low unemployment, millions of job openings and strong consumer spending, which makes up 70% of all the country's gross domestic product.
Combine the hot economy with supply chain issues, a war-induced energy run-up and four-decade high inflation, and it's clear why the Fed raised interest rates Wednesday by three-quarters of a percentage point. Investors are concerned that higher lending costs could cause corporate growth to ebb.
How much longer and further markets will decline is impossible to say, but the five charts we've compiled from the past 14 bear markets can offer perspective on how markets have tumbled and recovered.
COVID-19 drove fastest bear market
Only the Great Depression and the Black Monday crash in 1987 come close to matching the speed with which the coronavirus downturn entered a bear market: 10 times faster than average.
This S&P 500 bear market started its decline as the year began and Russian forces massed near the Ukrainian border. About 100 days later, it hit the 20% threshold – closer to the average decline of 164 days.
Stock market could be choppy for weeks
History doesn't suggest there will be a bottom in the near future, though the declines might not be as large as in the past week. The quick 2020 bear market was as unprecedented as almost everything surrounding COVID-19.
Bear markets cut more deeply
We're in the early days of this bear market. Although the rapid descent of stocks since last week might make this feel like a sharp fall, the market decline is smaller than the average bear market. The S&P 500 has fallen by about 36% on average.
Return to bull market peak can be a long climb
Once the bear market is over, getting back to where investors started has often been a long climb.
No climb matches that of the Great Depression stock market. It took about 25 years for the S&P index to reach 31.92 on Sept. 22, 1954, after it closed there on Sept. 7, 1929. On the other end of the spectrum, again, was the 2020 recession that gained back 20% (bull market) even faster than it lost 20%.
Best investing advice in a bear market: Just hang on
If the spiraling prices and rising international tensions at the start of the year drove you to sell your S&P 500 mutual funds or exchange-traded funds, you were among the lucky investors. Rarely are any of us so fortunate.
Avoiding sell-offs is difficult, if not impossible. Investors often sell when U.S. markets suffer losses as they have in the past few weeks, and they may be left behind when stocks make their biggest advances.
Consider how much you would have gained if you had sold before 10 of the worst days during the decade before June 15, according to data from Ned Davis Research.
As we watch the markets' gyrations during all this uncertainty, Ned Davis has one last heartening fact: Though stocks have lost 36% on average during a bear market, they've gained 114% on average during a bull market.