We’re in a Bear Market. Now What?
The U.S. economy entered a bear market on June 13, 2022. You may wonder what this means for the economy, as well as for private consumers and investors. Here’s what to know about bear markets and possible actions you may want to take.
What is a bear market?
According to the S&P Global, a bear market is Wall Street’s term describing an index, like the Dow Jones Industrial Average, the S&P 500 or an individual stock falling 20% or more from a recent high over a prolonged period of time. It’s important to note that a bear market is a normal part of the market cycle.
What causes a bear market?
The economy enters a bear market when investors lack confidence in the market and in individual stocks, so they pull their investments. This leads to a weak market, which further prompts investors to pull out. Eventually, this can cause the market to sag for an extended time, leading to an official bear market.
How long does a bear market last?
Since the S&P 500 index was established in the late 1920s, the average bear market lasted approximately 10 months. In contrast, the average bull market lasts 2.7 years. However, there is no sure way of knowing when a particular bear market will end. Due to the extreme conditions that caused the current bear market, experts expect it to last through the rest of 2022.
Investing in a bear market
If you’re an investor, you may be wondering what, if any, financial moves you should be making.
First, whenever the market is falling, choose defensive investments. This includes consumer staples, utilities and healthcare. The obvious rationale behind this advice is that people will always need these items and services regardless of what happens to the economy.
Next, continue making regular contributions to a 401(k), index funds or any other retirement or long-term investments. The overall value of these accounts will dip at the start of a bear market, but when the market recovers, so will these accounts.
Finally, if you dare, you may want to cash in on low prices to buy other kinds of stocks and assets that have proven to perform well immediately following bear markets. This includes high-tech, dividend and agriculture stocks.
Does a bear market always lead to recession?
A recession is generally defined by a decline in the Gross Domestic Product (GDP) over two consecutive quarters. Though a bear market signifies a weak economy, it does not mean a recession is inevitable.
Consider the information shared here and take steps to successfully navigate this bear market.