In markets, the terms “bull” and “bear” refer to optimists and pessimists. While the terms come to us from early 18th century Britain, their use to describe more sustained upward/downward movements as bull and bear markets didn’t really become common until the late 1950’s. Stocks are considered to have entered a “bear market” when widely followed indexes such as the S&P 500 or the NASDAQ sink 20% from their most recent high points. It is not an official designation, rather it’s a way for market participants to mark when markets have taken a tumble…and tumble they have.
As of the end of last Friday (5/20) the Dow industrials posted their eighth straight weekly loss, the longest streak since the Great Depression (1932). The S&P 500 and Nasdaq had their seventh straight weekly loss, their longest such streak since the bursting of the dot-com bubble (2001). The sell-off has been broad and deep as investors grapple with a confluence of issues - a shift in interest rates, supply chain snarls, inflationary pressures, and geo-political challenges.
However, investors would do well to keep some perspective about how markets behave, particularly when it comes to bear markets.
Characteristics of bear markets:
S&P 500 Index declines of 20% or more, 1929–2021
Source: Ned Davis Research, 12/21.
Bear markets are inevitable, and predictable in how investors react to them. They tend to feel terrible and eventually many investors give up and sell. When things look the worst, and most investors finally “capitulate” it often marks a turning point, and the green shoots of the next bull market are born.
It can be difficult to weather the storm, and ride it out, but long-term benefits await the disciplined investor who can do so.
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