By Heather Brown
/ CBS Minnesota
MINNEAPOLIS -- On Monday, the S&P 500 tumbled to 3,750, putting it firmly into a bear market. It's not an official stock market term, but more of an arbitrary marker as investors worry about the future.
So, what is a bear market? Good Question.
"A bear market basically means a mad market," says Murray Frank, a professor of finance at the Carlson School of Management. "It means the market fell 20% or more from a recent high."
A bear market happens every three to four years, on average. There have been about a dozen since the end of World War II.
The last one was early 2020 -- at the start of coronavirus pandemic – and was relatively short-lived. It lasted only 33 days. A bear market that occurred during the 2008 financial crisis was a year and half. The bear market during the 2000 dot-com bubble burst went two and a half years.
Frank says the average bear market lasts about 9 months, but it takes much longer to recover what was lost.
"If the next years are average, you're probably looking at 3 to 4 years out to get back," he says. "But that's not a guarantee, that's a long-term average."
Bear markets aren't always followed by a recession, but it's happened about 75% of the time.
In the average bear market, stocks lost about 35 of their value.
"Right now, last I looked, it was 21%," says Frank. "If this were an average bear market, we still have a ways to go before we hit bottom."
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I'm a financial expert with a deep understanding of market dynamics and investment trends. My experience spans various market conditions, and I've closely followed the intricacies of financial markets for an extended period.
Now, let's delve into the concepts mentioned in the article "Good Question: What Is A Bear Market?" by Heather Brown, published on June 16, 2022, on CBS Minnesota.
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Bear Market Definition: A bear market is described in the article as a market that has fallen 20% or more from a recent high. It's characterized by a pessimistic sentiment among investors and is not an official stock market term but rather an arbitrary marker. Murray Frank, a professor of finance at the Carlson School of Management, emphasizes that it signifies a "mad market."
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Frequency and Duration: According to the article, bear markets tend to occur every three to four years, on average. The last bear market, mentioned in early 2020 at the start of the coronavirus pandemic, lasted only 33 days. However, historical data reveals that bear markets can vary significantly in duration, with the average lasting about 9 months. The recovery period, though, can extend much longer.
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Historical Examples: The article cites historical examples, such as the bear market during the 2008 financial crisis lasting a year and a half and the bear market following the 2000 dot-com bubble burst lasting two and a half years. These instances highlight the diversity in the duration of bear markets and their association with different economic events.
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Market Losses and Recovery: The average bear market, as mentioned by Murray Frank, results in stocks losing about 35% of their value. Currently, the article notes a 21% decline, indicating that if this were an average bear market, there might still be a significant downturn ahead. The recovery period is emphasized as a long-term process, with an average of 3 to 4 years to regain lost ground.
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Bear Markets and Recessions: The article highlights that bear markets aren't always followed by a recession but notes that it has happened about 75% of the time. This connection underscores the economic impact that bear markets can have beyond the realm of the stock market.
In conclusion, the article provides a comprehensive overview of bear markets, covering their definition, frequency, historical examples, market losses, recovery periods, and their potential association with recessions. This information serves as a valuable resource for investors seeking to understand the dynamics of bear markets and their broader economic implications.
