A bear market is defined as a decline of 20% or more from a recent peak in a broad market index, sustained over a period of at least two months. The term's origin is debated β one theory links it to bears swiping downward with their paws.
Bear Market Characteristics
- Sustained price declines across most sectors
- Rising investor pessimism and fear (elevated VIX)
- Declining trading volumes in later stages as investors capitulate
- Widening credit spreads (investors demand higher premiums for risk)
- Layoffs, earnings downgrades, and reduced corporate investment
Historic U.S. Bear Markets (S&P 500)
- 1929 Great Depression: β86% over 33 months (Sep 1929 β Jun 1932). Took 25 years to recover
- 1973β74 Oil Crisis: β48% over 21 months. OPEC oil embargo, stagflation
- 2000β02 Dot-com Bust: β49% over 31 months. NASDAQ fell 78% from its peak
- 2007β09 Global Financial Crisis: β57% over 17 months (Oct 2007 β Mar 2009). Housing bubble, Lehman collapse
- 2020 COVID Crash: β34% in just 23 trading days (fastest in history). Full recovery in only 5 months β the shortest bear market ever
- 2022 Rate Shock: β25% over 10 months (JanβOct 2022). Fed's aggressive rate hikes from 0% to 4.5%
Bear Market Statistics (since 1928)
- Average decline: β36%
- Average duration: ~14 months
- Average time to recovery: ~24 months
- Occurred roughly every 5.4 years on average
Bear Market Phases
1. Distribution: Smart money sells while prices are still near highs
2. Public participation: Bad news accelerates, retail investors panic sell
3. Capitulation: Extreme selling, volume spikes, maximum fear
4. Despair/Depression: Low volatility at low prices, disinterest in stocks
Investment Strategies During Bear Markets
- Dollar-cost averaging: Continue investing fixed amounts to buy more shares at lower prices
- Defensive rotation: Shift to utilities, consumer staples, healthcare (lower beta sectors)
- Safe-haven allocation: Increase gold, Treasury bonds, cash
- Contrarian buying: Historical data shows the best single-day returns often occur during bear markets
Sources: S&P Global, Yardeni Research, NBER, Bloomberg