What The Bear Market Means For Investors

The shortest bull market of the past 80 years died on Monday, and a new bear market was born. The bull market began in the depths of the COVID-19 crash, on March 23, 2020, and ended on Jan. 3, 2022. That comes out to the length of a little less than two years, or 651 days. 

That’s much shorter than all of the other bull markets of the past few decades, which have lasted anywhere from five years to 12 1/2 years, according to Yardeni Research. The data stretches all the way back to the 1940s before finding a shorter bull run. 

But even though the market was short, it was pretty good in terms of overall returns. From the bottom in March 2020 to the top in January 2022, the gain in the S&P 500 was 114%. That’s more than the returns of the five-year bull market between 2002 and 2007, and close to the returns of the six-year bull market between 1974 and 1980. 

Birth Of A Bear Market  

With the death of the bull comes the birth of the bear. With the S&P 500 closing 20% below its all-time highs, the bear market label is now “official” (or as official as a designation based on a rule of thumb can be).

Does that mean things will get much worse from here? 

Not necessarily, because 20% is not a magic number; it’s just a handy guide that helps define the type of market environment we’re in. And in reality, it has felt like stocks were in a bear market long before the S&P 500 crossed the 20% down mark on Monday. 

Tech stocks, high growth stocks and other pockets of the market have been sliding for almost a year and a half. Prices for many of those stocks have been cut in half or more.

Even the broad tech sector—which is the largest sector in the S&P 500 by weight and dominated by heavyweights like Apple and Microsoft—is down 31% from its highs. 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.) 

So, the fact that the S&P 500 joined the bear market isn’t all that shocking.

Where We Go From Here 

Now that the stock market is in a bear market, where does it go from here? The median bear market over the past century lasts about a year, with a decline of around 33%. That compares to the current bear market, which has lasted a little over five months and fallen 22%. 

From that perspective, you’d think we have a long way to go—or at least, a long time to go—before the bear market ends. 

Maybe, maybe not. 

Every bear market is different, so taking an average or a median doesn’t tell us what’s going to happen this time around. Out of the last four bear markets, two were brutal, multiyear downturns. The other two were over in the blink of an eye.

This one could be short, long or somewhere in between. 

How deep and how long the bear market ends up being will come down to what happens with inflation. Mind you, there isn’t a single person who knows exactly what will happen with inflation, just like no one could predict that inflation would be this high to begin with.

What we do know is this: There have been many times in which the U.S. stock market has been through much worse than what we see today, and it has come back stronger each time.

Inflation will eventually come down and the U.S. economy will thrive. In the meantime, hope for the best, but brace for the worst. 

Follow Sumit on Twitter @sumitroy2