Should you continue to buy stocks in a bear market? (2024)

Should you continue to buy stocks 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.

Because bear markets typically precede or coincide with economic recessions, investors often favor assets, during these times, that deliver a steadier return — irrespective of what's happening in the economy. This “defensive” strategy might mean adding the following assets to your portfolio: Dividend-paying stocks.

Growth stocks in bull markets tend to perform well, while value stocks are usually better buys in bear markets. Value stocks are generally less popular in bull markets based on the perception that, when the economy is growing, "undervalued" stocks must be cheap for a reason.

Stock prices are lower than they've been in a long time, and it's a smart time to buy the dip and invest at a discount. If we face a recession, the market may fall further. But it will recover eventually. By investing during the low points, you'll be in a perfect position to take advantage of the upswing.

What should investors do during a bear market? For many investors, seeing their investment portfolios turn red can be alarming and make them want to pull their money out to avoid further losses. But this is the wrong strategy, Veldkamp says. “Do not sell right now unless you absolutely need that money,” she says.

Bear markets tend to be short-lived.

The average length of a bear market is 292 days, or about 9.7 months. That's significantly shorter than the average length of a bull market, which is 992 days or 2.7 years. Every 3.5 years: That's the long-term average frequency between bear markets.

If you're retired, don't take withdrawals from your stock funds in a bear market unless you have no other choice. You won't have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.

Investors can create a hedge with defensive stocks during a bear market if they do not want to exit the markets entirely. Examples include The Procter & Gamble Company (PG), Campbell Soup Company (CPB) and The Coca-Cola Company (KO).

Look for buying opportunities

Bear markets can provide opportunities to buy high-quality investments at a discount. Therefore, intelligent investors look for buying opportunities during bear markets and take advantage of them when they arise.

Will the stock market recover in 2023?

A recovery is coming, but no one knows when.

The stock market rallied modestly in the first two and a half months of 2023, but that has not been enough to make up for an abysmal 2022 during which the S&P 500 index plunged by nearly 19%.

So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023.

When things are looking bleak, consider holding on to your investments. Selling during market lows can be one of the worst things you can do for your portfolio — it locks in losses. When the market evens out down the road, rebalancing may be in order.

Common mistakes to avoid when retiring into a bear market include taking on too much risk with investments, failing to diversify portfolios, making poor financial decisions due to emotions, not having an adequate emergency fund, and not taking advantage of tax-deferred retirement accounts.

Check on your emergency savings

Emergency savings are a lifeline even in bull markets. They're even more important when things get grizzly. Fidelity's recommendation is to save enough cash to cover at least 3 to 6 months' worth of essential expenses.

At the same time as the market is adjusting its expectations for the Fed, we're seeing that earnings have unmistakably inflected and are now coming down. Based on how earning estimates have been progressing, 2023 is increasingly looking like it could be a ‒10% earnings year.

As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days. Image source: Getty Images.

The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9, 2007 to March 9, 2009, during the financial crisis of 2007–2009. The S&P 500 lost approximately 50% of its value, but the duration of this bear market was just below average.

The average 70-year-old would most likely benefit from investing in Treasury securities, dividend-paying stocks, and annuities. All of these options offer relatively low risk.

How not to lose money in bear market?

By investing a fixed amount of money at regular intervals regardless of market conditions, you're more likely to be able to purchase equities at more affordable prices, and potentially see the shares rise in value once the market rebounds.

Many investors ask if they should sell stocks in a bear market. A smart investor will never sell during a bear market. Panic selling can ruin your portfolio and take you away from your financial goals. This is an opportunity to buy stocks.

The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%. The deepest by far happened during the financial crisis between 2007 and 2009. We saw the S&P 500 lose approximately 59% of its value in about 27 months. On average, past bear markets have shown a drop of –34%.

A bear squeeze is a sudden change in market conditions that forces traders, attempting to profit from price declines, to buy back underlying assets at a higher price than they sold for when entering the trade. As the term implies, traders get squeezed out of their positions, usually at a loss.

The Buffett Strategy

Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices.

Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills. They keep rolling them over to reinvest them and liquidate them when they need the cash.

Investors can make gains in a bear market by short selling. This technique involves selling borrowed shares and buying them back at lower prices. It is an extremely risky trade and can cause heavy losses if it does not work out. A short seller must borrow the shares from a broker before a short sell order is placed.

One of Wall Street's most vocal bears expects the stock market to fully recover its losses and trade to record highs in 2024. "This is not the end of the world. This is not 2008. There's not going to be a financial crisis," Morgan Stanley's Mike Wilson told CNBC on Tuesday.

U.S. equities may disappoint in 2023, but patient investors can find potential income and returns in other markets. A grueling bear market, touched off by decades-high inflation and an aggressive Federal Reserve response, made 2022 one of the most challenging years for investment returns in the last half century.

Will the stock market ever go back to normal?

So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023. But unfortunately for eager investors, it's difficult to say.

9, 2007 -- but by September 2008, the major stock indexes had lost almost 20% of their value. The Dow didn't reach its lowest point, which was 54% below its peak, until March 6, 2009. It then took four years for the Dow to fully recover from the crash.

As shown in the table below, the recovery period for U.S. stocks has been as long as 15 years: In the wake of the 1929 Crash, the IA SBBI US Large Stock Index didn't fully recover until late 1944. For gold bugs, the longest recovery period spanned more than 26 years (from October 1980 until April 2007).

Widely used during the global financial crisis of 2007–2008 and the Great Recession that followed, the phrase was also often used to describe companies which could avoid share issues or bankruptcy. Commercial establishments that accept only cash payments have become suspect in the modern age.

According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more. In 2008, the total returns to shareholders fell for all sectors by over 20%, but consumer staples was an exception to this.

The bear market can make millionaires and with these tokens you have a chance. While you might think that bear markets are where people lose money, this isn't always necessarily the case.

A bull market occurs when securities are on the rise, while a bear market occurs when securities fall for a sustained period of time.

The fifty percent principle predicts that when a stock or other security undergoes a price correction, the price will lose between 50% and 67% of its recent price gains before rebounding.

What is the 2% rule in bear market?

2% rule: in a bear market, the decline occurs at approximately 2% per month, which means the bear markets do not start with a sharp sudden drop, but rather as a slow steady decline. If a drop of more than 2% is occurring, the market maybe under correction rather than in a bearish sentiment.

Since the beginning of 2022, cash equivalents have materially outperformed stocks and bonds and - with short-term interest rates all but certainly headed higher before they head lower and a recession increasingly likely to hit soon - cash continues to look like it is king in 2023 and potentially beyond.

The average bear market lasts long enough to give investors plenty of time to respond. Defensive stock sectors including consumer staples, utilities, and health care tend to outperform during bear markets. Government bonds offer important diversification benefits and the potential of strong returns in a recession.

The most obvious mistake one can make when retiring into a bear market is to sell stocks when they are low. This can be tempting when the market is down and times look bleak, but it is important to remember that bear markets are temporary. The market will eventually recover.

As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days. Image source: Getty Images.

Bear markets are largely pessimistic ones, so profits can be realised from short-selling and selling investments early in the bear market. They can also come from buying at the bottom of a bear market or a buy and hold strategy, where traders and investors simply wait out the bear market and ride the price rally up.

What does Warren Buffett do in a bear market?

Buffett employs a selective contrarian investment strategy. Using his investment criteria to identify and select good companies, he can make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.

That compares with an average recovery time of nearly five years for the harsher bears. Two years may seem like a long time to stare down red numbers in your portfolio, and five may seem like an eternity. But if you're invested for decades, a period of a few years is a blip.