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Bear Market Perspective

Jul 11, 2022

Participating in the stock market during a bear market cycle is always difficult. Nobody hopes to go through a bear market. Opening our investment statements and seeing losses is no picnic. While it might be challenging right now to envision a market recovery today, more than a century of market history suggests that they can occur unexpectedly.

Financial markets have declined dramatically in the second quarter with high inflation and the onset of interest rate hikes by the Federal Reserve. Rising interest rates triggered the S&P 500 Index to a decline of 23% at one point in June, with the market officially entering bear market territory before recovering slightly. 

Bear markets are a normal part of the investment cycle. A bear market means a fall of 20% or more from a previous market high.

The S&P 500 Index has experienced a bear market 11 times since 1956 with the average bear market lasting one year and two months with a decline of 34.6%. Average bull markets by contrast have lasted 5 years and 9 months and a return of 184%.[1] 

So, market history indicates bull markets have lasted longer and have produced much higher returns than the declines suffered during bear markets.

Remaining patient during periods of market decline whether they be corrections or bear markets has rewarded investors by allowing for full participation in the next bull market. Over the last century, US stocks after a period of steep decline have averaged positive returns for several years.

Reacting emotionally to downward trends in the stock market by selling out of your investment strategy is a good way to derail your financial plan. Besides, your financial plan and investment strategy were built in anticipation of you experiencing periods of market decline.

Much like history, earning the anticipated market return over time will occur by remaining invested through many market cycles which will include corrections, bear markets, recoveries and growth again not by trying to time the market.

With many asset classes in decline this year, remaining invested within a diversified strategy has been the best approach to tolerating this period while also enabling participating for a recovery and future growth.

[1] Source: Clearnomics, Standard and Poor’s July 7, 2022

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