NATIONAL NEWS

A bear market may be on the horizon. Here’s what that means

May 19, 2022, 1:26 PM | Updated: Jun 13, 2022, 10:59 am
FILE: The Wall Street street sign is seen on Feb. 24, 2022, in New York City. U.S. stocks opened th...
FILE: The Wall Street street sign is seen on Feb. 24, 2022, in New York City. U.S. stocks opened this morning dropping after Russia began its attack on Ukraine. The Dow Jones opened 800 points down while the S&P 500 fell 2 percent and is down 14 percent from its record high set in January. Oil prices also dropped more than 5 percent. (Photo by Michael M. Santiago/Getty Images)
(Photo by Michael M. Santiago/Getty Images)

NEW YORK (AP) — Investors on Wall Street need a place to hide.

The stock market’s skid this year has pulled the S&P 500 close to what’s known as a bear market. Rising interest rates, high inflation, the war in Ukraine and a slowdown in China’s economy have caused investors to reconsider the prices they’re willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers.

The last bear market happened just two years ago, but this would still be a first for those investors that got their start trading on their phones during the pandemic. For years, thanks in large part to extraordinary actions by the Federal Reserve, stocks often seemed to go in only one direction: up. Now, the familiar rallying cry to “buy the dip” after every market wobble is giving way to fear that the dip is turning into a crater.

Here are some common questions asked about bear markets:

___

WHY IS IT CALLED A BEAR MARKET?

A bear market is a term used by Wall Street when an index like the S&P 500, the Dow Jones Industrial Average, or even an individual stock, has fallen 20% or more from a recent high for a sustained period of time.

Why use a bear to represent a market slump? Bears hibernate, so bears represent a market that’s retreating, said Sam Stovall, chief investment strategist at CFRA. In contrast, Wall Street’s nickname for a surging stock market is a bull market, because bulls charge, Stovall said.

The S&P 500 index slipped 24 points as of 11 a.m. Thursday to 3,900.06. It’s now down 18.7% from its high of 4,796.56 on Jan. 3. The Nasdaq is already in a bear market, down almost 29% from its peak of 16,057.44 on Nov. 19. The Dow Jones Industrial Average is more than 15% below its most recent peak.

The most recent bear market for the S&P 500 ran from February 19, 2020 through March 23, 2020. The index fell 34% in that one-month period. It’s the shortest bear market ever.

___

WHAT’S BOTHERING INVESTORS?

Market enemy No. 1 is interest rates, which are rising quickly as a result of the high inflation battering the economy. Low rates act like steroids for stocks and other investments, and Wall Street is now going through withdrawal.

The Federal Reserve has made an aggressive pivot away from propping up financial markets and the economy with record-low rates and is focused on fighting inflation. The central bank has already raised its key short-term interest rate from its record low near zero, which had encouraged investors to move their money into riskier assets like stocks or cryptocurrencies to get better returns.

Last week, the Fed signaled additional rate increases of double the usual amount are likely in upcoming months. Consumer prices are at the highest level in four decades, and rose 8.3% in April compared with a year ago.

The moves by design will slow the economy by making it more expensive to borrow. The risk is the Fed could cause a recession if it raises rates too high or too quickly.

Russia’s war in Ukraine has also put upward pressure on inflation by pushing up commodities prices. And worries about China’s economy, the world’s second largest, have added to the gloom.

___

SO, WE JUST NEED TO AVOID A RECESSION?

Even if the Fed can pull off the delicate task of tamping down inflation without triggering a downturn, higher interest rates still put downward pressure on stocks.

If customers are paying more to borrow money, they can’t buy as much stuff, so less revenue flows to a company’s bottom line. Stocks tend to track profits over time. Higher rates also make investors less willing to pay elevated prices for stocks, which are riskier than bonds, when bonds are suddenly paying more in interest thanks to the Fed.

Critics said the overall stock market came into the year looking pricey versus history. Big technology stocks and other winners of the pandemic were seen as the most expensive, and those stocks have been the most punished as rates have risen.

Stocks have declined almost 35% on average when a bear market coincides with a recession, compared with a nearly 24% drop when the economy avoids a recession, according to Ryan Detrick, chief market strategist at LPL Financial.

___

SO I SHOULD SELL EVERYTHING NOW, RIGHT?

If you need the money now or want to lock in the losses, yes. Otherwise, many advisers suggest riding through the ups and downs while remembering the swings are the price of admission for the stronger returns that stocks have provided over the long term.

While dumping stocks would stop the bleeding, it would also prevent any potential gains. Many of the best days for Wall Street have occurred either during a bear market or just after the end of one. That includes two separate days in the middle of the 2007-2009 bear market where the S&P 500 surged roughly 11%, as well as leaps of better than 9% during and shortly after the roughly monthlong 2020 bear market.

Advisers suggest putting money into stocks only if it won’t be needed for several years. The S&P 500 has come back from every one of its prior bear markets to eventually rise to another all-time high. The down decade for the stock market following the 2000 bursting of the dot-com bubble was a notoriously brutal stretch, but stocks have often been able to regain their highs within a few years.

___

HOW LONG DO BEAR MARKETS LAST AND HOW DEEP DO THEY GO?

On average, bear markets have taken 13 months to go from peak to trough and 27 months to get back to breakeven since World War II. The S&P 500 index has fallen an average of 33% during bear markets in that time. The biggest decline since 1945 occurred in the 2007-2009 bear market when the S&P 500 fell 57%.

History shows that the faster an index enters into a bear market, the shallower they tend to be. Historically, stocks have taken 251 days (8.3 months) to fall into a bear market. When the S&P 500 has fallen 20% at a faster clip, the index has averaged a loss of 28%.

The longest bear market lasted 61 months and ended in March 1942 and cut the index by 60%.

___

HOW DO WE KNOW WHEN A BEAR MARKET HAS ENDED?

Generally, investors look for a 20% gain from a low point as well as sustained gains over at least a six-month period. It took less than three weeks for stocks to rise 20% from their low in March 2020.

___

Veiga reported from Los Angeles.

KSL 5 TV Live

Top Stories

National News

A suspected Chinese high altitude balloon floats over Billings, Montana, on February 1. (Larry Maye...
Oren Liebermann, Haley Britzky, Michael Conte and Nectar Gan, CNN

Pentagon tracking suspected Chinese spy balloon over the US

The U.S. is tracking a suspected Chinese high-altitude surveillance balloon over the continental United States, defense officials said on Thursday.
10 hours ago
This booking image provided by the Chicago Police Department, shows Eva Bratcher, who has been accu...
Associated Press

Daughter charged after mom’s body found in Chicago freezer

A Chicago woman is accused of keeping her mother’s dead body in a freezer for nearly two years while living in a nearby apartment.
1 day ago
U.S. Rep. Ilhan Omar (D-MN) leaves her office at the Longworth House Office Building on February 02...
Kevin Freking and Lisa Mascaro

House GOP votes to oust Democrat Omar from major committee

House Republicans have voted to oust Democratic Rep. Ilhan Omar from the House Foreign Affairs Committee.
1 day ago
U.S. President Joe Biden delivers remarks at the National Prayer Breakfast at the U.S. Capitol on F...
Colleen Long and Chris Megerian, Associated Press

Biden urges unity at prayer breakfast under new management

President Joe Biden attended the annual National Prayer Breakfast on Thursday in Washington and delivered a message of unity.
1 day ago
FILE: Groundhog handler AJ Derume holds Punxsutawney Phil, who saw his shadow, predicting a late sp...
Associated Press

Phil’s Groundhog Day prediction: 6 more weeks of winter

A furry critter in a western Pennsylvania town has predicted six more weeks of winter during an annual Groundhog Day celebration.
1 day ago
Law enforcement officers aim their weapons at a home during a standoff in Grants Pass, Ore., on Tue...
Associated Press

Oregon kidnapping suspect dies of self-inflicted gunshot

The suspect in a violent kidnapping in Oregon has died of a self-inflicted gunshot wound.
2 days ago

Sponsored Articles

vintage photo of lighting showroom featuring chandeliers, lamps, wall lights and mirrors...
Lighting Design

History of Lighting Design | Over 25 Years of Providing Utah With the Latest Trends and Styles

Read about the history of Lighting Design, a family-owned and operated business that paved the way for the lighting industry in Utah.
Fiber Optical cables connected to an optic ports and Network cables connected to ethernet ports...
Brian Huston, CE and Anthony Perkins, BICSI

Why Every Business Needs a Structured Cabling System

A structured cabling system benefits businesses by giving you faster processing speeds and making your network more efficient and reliable.
notebook with password notes highlighted...
PC Laptops

How to Create Strong Passwords You Can Actually Remember

Learn how you can create strong passwords that are actually easy to remember! In a short time you can create new ones in seconds.
house with for rent sign posted...
Chase Harrington, president and COO of Entrata

Top 5 Reasons You May Want to Consider Apartment Life Over Owning a Home

There are many benefits of renting that can be overshadowed by the allure of buying a home. Here are five reasons why renting might be right for you.
Festive kitchen in Christmas decorations. Christmas dining room....
Lighting Design

6 Holiday Decor Trends to Try in 2022

We've rounded out the top 6 holiday decor trends for 2022 so you can be ahead of the game before you start shopping. 
Happy diverse college or university students are having fun on their graduation day...
BYU MBA at the Marriott School of Business

How to Choose What MBA Program is Right for You: Take this Quiz Before You Apply!

Wondering what MBA program is right for you? Take this quiz before you apply to see if it will help you meet your goals.
A bear market may be on the horizon. Here’s what that means