Summary

• From Jan 3^rd to June 16^th, 2022, S&P 500 fell 23.55%, this is the weakest return since 1970.
• There have been 9 bear markets between November 1968 and July 2022.
• Inflation conspired to produce the stock market’s worst first-half performance (2022.01.03-2022.07.15) since 1970.

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S&P 500 Bear Market Characteristics

Investors have been quick to re-price stocks this year, despite sky-high inflation and a Federal Reserve that is locked and loaded on interest rate hikes. The S&P 500 fell 19.46% below its Jan.3 closing record on July 15th, 2022, with a close at that level meeting the definition of a bear market, while the maximum loss occurred on June 16th, -23.55%. This is the weakest return since 1970.

Bear markets are frequently associated with declines in a broad market or index, such as the S&P 500. A bear market occurs when a market’s prices fall for an extended period of time. It usually refers to a situation in which stock prices have fallen by 20% or more from recent highs due to widespread pessimism and negative investor sentiment.

We research how and when the stock market recovers. There have been 9 bear markets between November 1968 and July 2022, ranging in length from one month to 31 months, and drops in the S&P 500 from 19.91% to 56.39%. Here is the analysis of bear markets since 1968, including total returns, bear market length, and recovery length. For example, in the aftermath of the global coronavirus pandemic, global stocks entered a sudden bear market in February 2020, sending the S&P 500 down by 28.82% from its all-time high on February 10^th to a low on March 16^th in just over a month. However, the S&P 500 has reached a new high by August 2020. In summary, the average total return during the bear market was -35.26%, and the bear market lasted 14.25 months on average, with a recovery time of 28.38 months.

Causes of S&P 500 Bear Market

A weak or slowing or sluggish economy, bursting market bubbles, pandemics, wars, geopolitical crises, and drastic paradigm shifts in the economy, such as shifting to an online economy, are all factors that may cause a bear market. A slew of factors, all centered on inflation, conspired to produce the stock market’s worst first-half performance (2022.01.02-2022.07.15) since 1970. Demand has simply outstripped shippers’ ability to deliver products to market, resulting in significantly higher prices. Some of these issues were exacerbated by Russia’s attack on Ukraine, which drove up energy and food prices. Consumer confidence has plummeted, and inflation expectations have risen. Therefore, the cost of living in the United States began the year at levels not seen since the early 1980s. In the financial market, an S&P 500 down nearly 20% is also a symbol of how risk investing has collapsed across the board, from crypto to IPOs and even some areas of the commodities market.

What will Stop the Bear Market?

Bear markets have come in all shapes and sizes, showing significant variation in depth and duration. As shown in Table 1, except considering the worst three recessions, the average recovery length is 10.6 months. According to the data in Table 2, the S&P 500 has increased by 24.18% and 37.77% six months and one year respectively after the end of a bear market. The most recent bear market was caused by a global health crisis exacerbated by fear, which initially resulted in a wave of layoffs, corporate shutdowns, and financial disruptions.

Conclusion

Bear markets happen when stock prices have fallen 20% or more from recent highs due to widespread pessimism and negative investor sentiment. Since 1968, the average total return during the bear market has been -35.26%, and the average length of the bear market has been 14.25 months, with a recovery time of 28.375 months. A slew of factors, all centered on inflation, conspired to produce the most recent bear stock market (2022.01.02-2022.07.15). Markets will recover, as they always do over time. A period of a bear market is a period of long-term investment opportunities.

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