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What is a "bear market" and how long might it take to recover?

MINNEAPOLIS — The S&P 500 tumbled even more Thursday, putting it firmly into a bear market.

That’s not an official term, but more of an arbitrary marker as investors worry about the future.

So, what is a bear market, and how long might it take to recover? Heather Brown spoke with Murray Frank to find out. He’s a professor of finance at the University of Minnesota’s Carlson School of Management.

“[Bear markets have occurred] every three to four years roughly since the last few decades,” Frank said. “About a dozen times since World War II.”

The last one was in early 2020.

“There is enormous concern about the economic impact of the coronavirus,” he said.

It was relatively short, lasting just 33 days. The one before that, the 2008 financial crisis, was a year and a half. And the 2000 dot.com bubble burst before that went on for two-and-a-half years.

Frank says on average, bear markets last about nine months, but they take longer to recover what was lost.

“If the next four years are average, you’re probably looking at three to four years out to get back, but that’s not a guarantee, that’s a long-term average,” he said.

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CBS

Bear markets aren’t always followed by a recession, but it has happened about 75 percent of the time.

“It’s reflecting people’s expectation that a recession is coming,” Frank said. “By raising interest rates, they could actually tip us into a recession is they go too far too fast.”

In the average bear market, stocks lose about 35 percent of their value.

“Right now, last I looked, 21 percent. If this were an average bear market, we still have a ways to go before we hit bottom,” Frank said.

What can the history of bear markets tell us about what the future might bring?

“Bear markets are not always accurate predictions, it’s not a crystal ball,” he said. “But there’s a lot of forces in play right now that look pretty bad.”

There are two theories as to where the term bear market came from. The first is bears themselves, the animal attacks by swiping downward.

The other goes back to bear traders in the 1700s who would sell the skins before they got them, and hope they could buy them later at a lower price.


Source: CBS Minnesota

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