Wall Street could soon enter a bear market. The Trump administration recently raised tariffs on imported goods. As a result, fears have grown that these taxes could hurt the global economy.
Previously, the last bear market occurred in 2022. However, the current decline feels more like the fast and chaotic fall of 2020. Back then, the S&P 500 dropped by 34% in just one month. It became the shortest bear market in history.
Understanding bear markets
To explain, a bear market happens when a major index—like the S&P 500 or the Dow—falls by 20% or more from a recent high, and stays down for a while.
The name “bear” represents retreat, much like how bears hibernate. On the other hand, a “bull” market describes a rising market, because bulls charge forward.
On Monday, the S&P 500 dipped by 0.2%. Earlier, it had dropped as much as 4.7%. At present, it’s 17.6% below the all-time high from February 19.
In comparison, the Dow Jones fell 0.9%. Meanwhile, the Nasdaq, already in a bear market, managed a slight gain of 0.1%.
To add context, the S&P 500’s last bear market ran from January 3 to October 12, 2022.
Why are investors worried?
One major reason is the trade war. It has triggered anxiety over how businesses and consumers will respond.
Last week, President Donald Trump followed through on tariff threats. He imposed a 10% tax on all imports and higher rates on countries with trade surpluses against the U.S.
The following day, global markets dropped sharply. Then, China retaliated by imposing equal tariffs on U.S. goods.
These tariffs create problems. First, importers pay the tax, but they often raise prices for consumers. That adds pressure to inflation. Second, tariffs usually lead to retaliation, which can hurt all economies involved.
Moreover, these policies make it harder for businesses to plan. They must rethink suppliers, factory locations, and pricing. Due to the uncertainty, many companies delay or cancel investments. That slows down economic growth.
At the same time, the U.S. economy is already showing signs of weakness. Additionally, fears are rising that tariffs may worsen inflation, which has started to climb.
How long do bear markets usually last?
Typically, bear markets take 13 months to fall from their peak to the lowest point. Then, it takes another 27 months to recover, on average. Since World War II, the S&P 500 has fallen an average of 33% during bear markets. Notably, the biggest drop occurred during the 2007–2009 crisis. At that time, the index fell by 57%.
Interestingly, the faster the index enters a bear market, the smaller the overall decline tends to be. Historically, stocks have taken 251 days (or about 8.3 months) to fall into bear territory. When the fall happens faster, the average drop is around 28%.
The longest bear market on record lasted 61 months. It ended in March 1942 and reduced the index by 60%.
When does a bear market end?
Generally, a bear market ends after a 20% rise from the lowest point, along with steady gains over six months. For example, in March 2020, stocks climbed 20% in less than three weeks after the crash.
What should investors do now?
If you need money soon or want to limit losses, selling might help. Otherwise, most financial advisers suggest staying invested. Market ups and downs are part of long-term growth.
While selling may stop losses, it also blocks potential gains. “Many of the best days for Wall Street have occurred either during a bear market or just after one ended.”
For instance, during the 2007–2009 bear market, the S&P 500 jumped 11% on two separate days. Similarly, it surged more than 9% during and shortly after the 2020 bear market.
Therefore, experts recommend investing in stocks only if you won’t need the money for several years. “The S&P 500 has come back from every one of its prior bear markets to eventually rise to another all-time high.”
Even after the painful crash in 2000 during the dot-com bubble, stocks eventually recovered. Although it was a tough decade, the market bounced back.
