Bear Market

A bear market is a sustained decline of 20% or more from a recent market high, lasting at least two months. That 20% threshold is the universally accepted technical definition used by analysts, financial institutions, and regulators. In April 2025, the S&P 500 entered bear territory when it declined more than 20% from its peak, driven by escalating trade tensions and tariff uncertainty under the Trump administration.

Think of a bear market like a wave that has to fully crest and crash before the next one builds: the market needs to exhaust the selling before buyers can take control again.

Bear Markets Have Happened Regularly Throughout History

Since World War II, the S&P 500 has experienced 13 bear markets. On average, they appear roughly every six years. The average decline is 32.4%, and the average duration is approximately 355 days. History shows they are a normal part of investing, not an aberration.

The bear market following the 2008 financial crisis lasted about 17 months, with the S&P 500 losing more than half its value before bottoming in March 2009. The COVID-19 bear market in 2020 was one of the fastest on record, with the market losing 37% in about a month before rebounding equally quickly. Each bear market has its own character and recovery timeline.

The Three Types of Bear Markets

Goldman Sachs research published in April 2025 classifies bear markets into three types based on their cause and recovery profile.

• Cyclical bear markets. Triggered by deteriorating economic conditions and tightening monetary policy. They typically last around two years and take approximately five years to fully recover to their prior peak.
• Structural bear markets. Caused by deep financial or economic imbalances, such as an asset bubble collapse. These are the most severe and the longest. The Great Depression bear market of 1929 to 1932 saw stocks lose roughly 90% of their value, with full recovery taking until 1954.
• Event-driven bear markets. Triggered by a one-off shock, such as a war, a pandemic, or a sudden policy change. These tend to last around eight months and recover in about a year, assuming the shock does not trigger a full recession.

What Drives a Bear Market

Loss of confidence is the root cause. When investors expect the economy to weaken, company earnings to fall, or interest rates to rise significantly, they shift toward selling rather than buying. As prices drop, fear spreads and selling accelerates beyond what fundamental conditions alone would justify.

Recessions and bear markets often overlap but are not the same thing. A bear market is defined by price movement. A recession is defined by economic output contracting for at least two consecutive quarters. One can happen without the other, though they frequently occur together.

Bear Market Rallies Are Not the Real Thing

During a bear market, prices often bounce sharply for short periods before falling again. These are called bear market rallies, and they fool many investors into thinking the decline is over. A bear market rally is characterized by a price increase of 5% or more before prices resume their downward trend. They are common in the middle of every major bear market.

The difference between a bear market rally and a genuine recovery is confirmed only in hindsight. Signs of a real bottom typically include a meaningful slowdown in economic deterioration, policy support such as interest rate cuts, and depressed valuations that attract new buyers on a sustained basis.

What Investors Generally Do During a Bear Market

Trying to time the exact bottom consistently destroys more value than it preserves. History shows that missing the best-performing days during a bear market recovery, which often come before anyone is sure the bear market has ended, dramatically reduces long-term returns.

The strategies most frequently associated with surviving bear markets are maintaining portfolio diversification, continuing to invest at regular intervals (dollar-cost averaging), and avoiding the temptation to sell at the worst moment. Short selling and put options let experienced traders profit directly from falling prices, but both carry amplified risk in volatile conditions.

Sources:
https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained
https://www.sofi.com/learn/content/bear-market/
https://en.wikipedia.org/wiki/Market_trend
https://www.gspublishing.com/content/research/en/reports/2025/04/08/0bf285f5-8d4a-478c-843f-4b4ea81256d5.html
https://www.nasdaq.com/articles/was-2025-actually-bear-market-crypto-heres-what-data-says