If you invested pandemic-era gains into the stock market, or own a 401(k) plan, get ready for an anxiety-inducing ride. For the first time in nearly two years, the stock market crossed into bear market territory this week as inflationary concerns have sent the S&P 500 spiraling down more than 20% from its record high in early January.
The grim milestone marks yet another low point for Wall Street, which has been rocked by a sharp selloff of stocks in recent months. On Monday, the S&P 500 tumbled nearly 4% as all but five of its components ended the day with losses. Stocks continued to fall on Tuesday but turned upward following Wednesday’s Federal Reserve meeting, where policymakers raised interest rates by three quarters in a continued effort to fight inflation.
It’s unknown how long the bear market will last, but historical examples can shed some light on what to expect. Here’s what you need to know.
What is a bear market?
Wall Street uses the “bear market” term to describe a sustained period when the equity markets are down at least 20% from their recent peaks. Passing the 20% threshold—which occurred on Monday for the S&P 500 index—typically indicates widespread pessimism about the health of the U.S. economy and negative investor sentiment.
Such steep downturns are relatively rare, only occurring 14 times since World War II, including this one. Once previous bear markets had begun, it took an average of 19 months for stock prices to stop falling, according to an LPL Research analysis. But some take less time. The last bear market carried on for only 33 days, from mid-February to late March of 2020, at the start of the Covid-19 pandemic—the shortest bear market since World War II.
The most recent sustained bear market lasted 17 months, beginning in …read more
Source:: Time – Business