What is a bear market and what does it mean for you? | Fidelity (2024)

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Key takeaways What is a bear market? What causes a bear market? How frequent are bear markets, and how long do they last? Do bear markets and recessions go hand in hand? What should you do during a bear market? Smart automation can make investing easy More to explore Free cash management account How to start investing Looking for more ideas and insights? Thanks for subscribing! We're on our way, but not quite there yet Oh, hello again! Thanks for subscribing to Looking for more ideas and insights? You might like these too: Fidelity Viewpoints® Decode Crypto Fidelity Smart Money℠ Active Investor Insights from Fidelity Wealth Management ℠ Women Talk Money Educational Webinars and Events FAQs

A 20% drop in stocks means we're in a bear market. Here's what you need to know.

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Key takeaways

A bear market occurs when stocks decline at least 20% from a recent high.
US stocks have dipped into bear territory about every 6 years on average over the past 150 years.
When markets drop, it's a good time to check in on your emergency savings and investment plan.

Since 1709, the financial world has embraced bears as the mascot for periods when stocks fall on hard times.¹ But just because many investors are fearful of bear markets doesn't mean you need to be.

Here's a breakdown of what you should know about bear markets, including tips for your dollars when facing one.

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What is a bear market?

A bear market is a period when stock prices have fallen at least 20% from recent market highs. The closing price of the S&P 500, an index that tracks the prices of 500 large publicly traded US companies, is often used to gauge if the US stock market is in bear-market territory.

Bear markets are the mirror image of bull markets, which represent an increase of at least 20% from market lows. Bear markets are more extreme than market corrections—a term used to describe a downward price swing of at least 10% from a recent high.

What causes a bear market?

The price drops that signal a bear market happen when many people sell their investments around the same time. These "sell-offs" happen when investors are concerned about the value of stocks or their future growth. Investors can get anxious about the future of investments for many different reasons—from global conflict and elections to shifting regulations and changes in consumer spending patterns.

How frequent are bear markets, and how long do they last?

During previous bear markets, the median decline in stock prices was 33% off their then-recent highs.² Over the past 150 years, US stocks have entered bear-market territory about every 6 years, on average.

See Also

Top 3 Technical Indicators for the Bearish Market- ICICI Direct How to manage risk in a bear market Bear market bottom and 10 sign to help you recognize it

Past performance is no guarantee of future results. Source: Fidelity Investments. See footnote 3 for details.

Historically, the US stock market has recovered from every bear market, often making sizable gains in the months immediately following the downturn.

Do bear markets and recessions go hand in hand?

While many people associate bear markets and recessions, they don't always go together. In about a quarter of bear markets, they haven't.⁴ In other words, just because the S&P 500 enters into bear-market territory, it doesn't mean you should expect the slowdown in economic activity and jobs that signal a recession.

What should you do during a bear market?

Nobody likes to watch their investment account balance fall. But some investors see falling stock prices as an opportunity. These 4 steps can help you ride out a bear market.

Check on your emergency savings

Emergency savings are a lifeline even in bull markets. They become more important when things turn bearish. Fidelity's recommendation is to start by saving $1,000, then aim to save 3 to 6 months' worth of essential expenses. This is typically enough to cover you in the event of a major unexpected event, like a job loss or medical emergency. In times of uncertainty, you may consider adding even more buffer, especially if you support more than just yourself or your immediate family.

Not sure how to find extra money for your savings? Read our guide on how to build emergency savings.

Keep your time horizon in mind

Seeing red in your portfolio for an extended time can be stressful. But try not to panic.

Look at your current investment performance in the context of your goals and investing timelines. Chances are that when you started investing, you knew you'd have to weather some down times in order to enjoy the good ones.

Still, bear markets can reveal important realities you may need to face as an investor. If losing money—even temporarily—makes you lose sleep, you may want to revisit your risk tolerance and asset allocation when the market recovers.

Remember: Selling when prices are down means you could miss out on the potential recovery. It's almost impossible to predict when the market will turn around. But historically it always has.

Maintain your investment strategy

When prices are down in a bear market, it can be tempting to put your investment contributions on hold. But just as you generally don't want to make withdrawals from the market when stocks fall, you'll also likely not want to stop making regular contributions to investment accounts.

When you set up automatic contributions through accounts like your 401(k), you're using dollar-cost-averaging, a strategy in which you invest the same dollar value, regardless of how the market's doing. You end up buying more shares when prices are low and fewer when prices are high. This positions you to pay less on average per share and see greater gains when the market rises.

If you hit pause on your investments when prices drop, you won't be able to swoop up shares at their discounted rate, which can shrink the impact that dollar-cost averaging has on your portfolio. Also, dollar-cost averaging does not assure a profit or protect against loss in declining markets. For the strategy to be effective, you must continue to purchase shares whether the market is up or down.

Consider investing more

If your financial house is in order and you feel prepared for an extended bear market, you can consider looking at a bear market as an opportunity to invest more while prices are low. Another option is rebalancing your current holdings to allocate more to stocks.

Keep in mind that if you get aggressive with your investments during a bear market, it's impossible to predict when the market will hit bottom. Money you move toward stocks now may be worth less tomorrow. In cases like these, it's especially important to keep an eye on the long term. And, as always, make sure to regularly revisit your financial plan (with your financial planner if you have one) to make sure you're on the right path for your goals.

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What is a bear market and what does it mean for you? | Fidelity (2024)

FAQs

What is a bear market and what does it mean for you? | Fidelity? ›

A bear market occurs when stocks decline at least 20% from a recent high. US stocks have dipped into bear territory about every 6 years on average over the past 150 years. When markets drop, it's a good time to check in on your emergency savings and investment plan.

Read On ›

What is bear market in your own words? ›

A bear market is a downward trend in financial markets, indicating a weakening economy and a loss of investor confidence. Generally, a market is considered a bear market when prices have declined more than 20%.

Discover More Details ›

Should you keep buying in a bear market? ›

Don't try to catch the bottom: Trying to time the market is generally a losing battle. One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy.

Continue Reading ›

What is the difference between a bear market and a recession? ›

Bear markets are often accompanied by an economic recession and high unemployment. But bear markets can also be great buying opportunities while prices are depressed. Some of the biggest bear markets in the past century include those that coincided with the Great Depression and Great Recession.

See Details ›

How do you benefit from a bear market? ›

But you can maximise your chances of a profit in a bear market by following bearish-friendly strategies. These include diversifying your holdings, focusing on the long-term, taking a short-selling position, trading in 'safe haven' assets and buying at the bottom.

Find Out More ›

What is the longest bear market in history? ›

The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%.

Tell Me More ›

How long does a bear market last? ›

The duration of bear markets can vary, but on average, they last approximately 289 days, equivalent to around nine and a half months. It's important to note that there's no way to predict the timing of a bear market with complete certainty, and history shows that the average bear market length can vary significantly.

Show Me More ›

What to avoid in a bear market? ›

Avoid knee-jerk reactions.

By selling when the market has fallen steeply, you're at risk of locking in a permanent loss of capital. To optimize your potential over the long term, what's crucial is time in the market, not market timing.

Explore More ›

How much cash should I have in a bear market? ›

By reducing the market exposure to 80% with a 20% cash position, the same market loss results in a portfolio loss of only 8%. It gives you peace of mind, which can reduce the chances of panic selling when the market is volatile.

Continue Reading ›

What investments do well in a bear market? ›

Government bonds and defensive stocks historically perform better during a bear market. However, most people investing for the long term shouldn't be aggressively tweaking portfolios every time there is a sell-off.

Show Me More ›

Why you shouldn't sell during a recession? ›

Downturns Are Followed by Upturns

Prices will go back up. If investors sell when the market is down, they will realize an actual loss. A lesson many investors have learned is that if they sit tight and wait for the upturn to come, they won't realize a loss.

Read The Full Story ›

Should you buy or sell during a recession? ›

Cash Is King During a Recession

However, selling investments to get cash in anticipation of a recession is risky. You might sell prematurely and get trapped in cash as markets rise. A better strategy is to shift into investments that are well-positioned to weather a recession.

See Details ›

Has there ever been a bear market without a recession? ›

A bear market doesn't necessarily indicate an economic recession. There have been 27 bear markets since 1928, but only 15 recessions during that time.

Get More Info Here ›

How do I survive a bear market? ›

Another option is to reduce your spending as much as you can during a bear market. This will allow you to withdraw less money from your portfolio when prices are down. Cutting spending isn't easy, but it may help you sleep better and get you through a period of high volatility.

Continue Reading ›

How to beat the bear market? ›

Take a short-selling position

As the saying goes, 'the trend is your friend'. Short-selling is a way in which you can follow the directional momentum in a bear market – you'd take a sell position (go short), by speculating on falling market prices. If your prediction pans out, you'll make a profit.

View More ›

What are the cons of bear market? ›

Cons of investing during a bear market

The continuous decline in prices and negative sentiment can lead to financial anxiety, fear and doubt. Emotional decision-making, such as panic selling or making impulsive investment choices, can harm investment returns.

View Details ›

Which best describes a bear market? ›

The SEC defines a bear market as a time when stock prices are declining, at least 20% over a two-month period, and market sentiment is generally not very optimistic. Bear markets typically result from an economic downturn fueled by geopolitical risks or market bubbles bursting.

See More ›

What the market will bear meaning? ›

The old adage “whatever the market will bear” is traditionally used to express what is presented as an answer to the question of what determines the price of any marketed product. Used in that way, it means that the price of a given marketed product rises to meet market demand.

Learn More ›

Why is a bear market bad? ›

Small dips, such as when the S&p 500 fell a few points in early September, don't count as bear markets. Bear markets are characterized by investors' pessimism and low confidence. During a bear market, investors often seem to ignore any good news and keep selling investments, which pushes prices even lower.

Discover More Details ›

What does a bear market mean for stock prices? ›

Market researchers define a bear market as when prices fall 20% from a recent high. Stock indexes such as the S&P 500 or the Dow Jones Industrial Average (DJIA) can fall into bear-market territory and individual stocks can also slip into bearish behavior.

Show Me More ›

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