Bear Markets: 8 Facts You Need To Know

There are few things scarier than a bear market, but steep and sustained drawdowns in stocks are an absolute fact of investing life…so a familiarity with the basics of bear markets should help you better cope with the next one and, to that end, we’ve compiled the following eight facts you must know about bear markets. Words: 516

This version of the original article by Dan Burrows and Anne Kates Smith (kiplinger.com) has been edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

1. Where Does the Term “Bear” Markets Come From?

…The term “bear market” originates with pioneer bearskin traders…[who] would sell skins they’d not yet received – or paid for – and because the traders hoped to buy the fur from trappers at a lower price than what they’d sold it for, “bears” became synonymous with a declining market.

2. What Is a Bear Market?

A bear market is when a broad market index, such as the S&P 500, falls 20% or more from its peak.

3. How Often Do Bear Markets Occur?

Bear markets have occurred, on average, every 56 months (about four years and eight months) since 1932.

4. What Causes A Bear Market? How Long Do They Usually Last?

… Higher interest rates, rising inflation, a sputtering economy, military conflict or geopolitical crisis are among the usual suspects…[and, of those, military conflicts are] the rarest. The average time to the market bottom after such events…is 21 days, with a full recovery in 45 days, on average.

5. Bear Markets Don’t Automatically Equal Recessions 

Bear markets often precede or coincide with economic downturns but there are almost as many instances of past bear markets in which stocks tanked but the economy did not. Since 1928, 14 bear markets heralded or happened during recessions…[but] another 11 bear markets since 1928 had nothing to do with recession…[and] bear markets that occur outside of recessions tend to be shallower and shorter.

6. What Was the Worst Bear Market of All Time?

The bear market that began just ahead of Black Monday that precipitated the Crash of 1929 was the worst one to date…[It lasted] from September 1929 to June 1932 [and] resulted in an 86.2% loss for the S&P…[and] took the market more than two decades to recover from the 1929-32 slump [with] stocks not regaining their prior peak until 1954.

7. How Long Do Bear Markets Last?

…A bear market usually feels like it lasts forever yet the average length of a bear market since 1929 is just 9.6 months.

8. What Are the Best (and Worst) Investments During a Bear Market?

…When stocks are in free fall and worries about the economy abound, there’s nothing more soothing than the full faith and credit of the U.S. government and

• a “flight to quality” often leads to gains in U.S. Treasury bonds.
• Defensive stocks will lose ground in a bear market, but tend to lose less than average, supported by steady demand for their products and, often, generous dividends.
• Gold, which Kiplinger recommends as a portfolio diversifier only in small amounts, often zigs upward when stocks zag downward.

As for the worst place to hide out in a bear market, it’s the highest-growth stocks with the broadest following. Indeed, these stocks can be among the worst performers in a bear market if their popularity led them to have outsized gains before everything collapsed. The higher they fly, the harder they fall.