The stock market, just like any market, has its fair share of ups and downs. Over the past few decades, investors have used certain terms used to describe the conditions of the stock market. At any given time, there can be a bear market or a bull market. In this article, we’ll cover bear markets. Check back in June 2022 for an article on bull markets!
A bear market is an investor’s worst nightmare. Bear markets occur when the stock market (S&P 500) falls more than 20% from its highest point. During a bear market, stock markets experience high levels of volatility (swings in stock prices).
Bear markets usually occur during times of uncertainty or economic turmoil. In 2009, the S&P 500 fell more than 25% as the great recession impacted the global economy. Then in 2020, the S&P 500 fell more than 30% as the COVID-19 pandemic shut down many American businesses and contributed to increased economic uncertainty. More recently, in early 2022, the S&P 500 is likely to enter a bear market due to high rates of inflation and rising interest rates.
Bear markets vary in length but have historically lasted around a year. Long-term investors have very little to worry about during bear markets, as stocks usually recover and reach all-time highs in the period after. While painful, bear markets present a terrific buying opportunity for long-term investors to buy stock in quality companies at a discounted price!