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What You Need to Know About Bear Markets

Due to the uncertainty of COVID-19, we are currently in what is called a bear market. With the present stock market volatility, it is important to remember this is not the first bear market, nor will it be the last.

  1. A stock index enters bear market territory when its closing price drops at least 20 percent from its most recent high. A bull market begins when the closing price of the index is greater than 20 percent from its low. The high is often referred to as the peak and the low as the trough.

  2. There have been 26 bull and bear markets since 1928. The most recent bear market started last month – February 2020. During the past 25 bear markets, the S&P 500 averaged a 36 percent loss. The longest bear market, November 1931 to June 1932, resulted in a loss of 61.81 percent. The ‘lightest’ bear market, from June 1948 to June 1949, resulted in a loss of 20.57 percent.

  3. The average length of a bear market in just shy of 10 months compared to the average length a bull market which is 33 months. On average, bear markets happen every 3.6 years, but averages don’t tell the whole story. From 1928 to the end of WWII in 1945, the S&P 500 saw 12 bear markets, with a bear market every 16 months. In the 75 years since WWII, there have been 13 bear markets, with a bear market every 67 months.

  4. Historically, there is a bear market every 3.6 years. Investors who spend 60 years in the market could possibly see 17 bear markets in their lifetimes.

  5. In the past 20 years, 50 percent of the S&P 500 index’s strongest days occurred during a bear market. What’s more, another 30 percent of the market’s best days occurred in the first 60 days of a bull market. The problem is that the market doesn’t tell us that we’re in the first 60 days of a bull market. This is a reason to stay calm and stay invested.

From Jan 3, 2000 until Dec 31, 2019, the S&P 500 had four bear markets. Additionally, there were two corrections of 19.4 percent and 19.8 percent in 2011 and 2018, respectively. All said, this is just shy of six bear markets in 20 years. The chart below shows annualized returns over the last 20 years and how your decision to stay invested can impact your future returns.

Source: Factset, Standard & Poor’s, J.P Morgan Asset Management. Data are as of March 18, 2020. This Chart is for Illustration purposes only. Past performance may not be indicative of future returns

To put the chart in perspective, the stock market has 253 trading days in a year, or 5,060 trading days, over 20-years. If you missed the 10 best days, your annualized return was reduced by 60 percent. If you missed the 20 best days in a 20-year window, you would’ve seen the same return as you would’ve if you kept your money in a savings account at a bank. So, while staying invested during turbulent times can be difficult, it would be even more challenging to recover your money if you do not stay invested.