In investing, there is no such thing as a sure thing. However, by studying historical market data, investors can gain insight into how different types of investments behave under different conditions. For instance, by understanding bear markets and their duration, investors can better protect their portfolios against potential losses. Considering the effect bear markets have on investments, the question becomes, how long does a bear market last? In this post, we’ll explore the average length of a bear market and a short history to try to answer this query. Read on to learn more.
Table of contents
What is a bear market?
A bear market is a prolonged period of falling stock prices. It is typically defined as a decline of 20% or more from the peak of the market.
Bear markets can be caused by a number of factors, including economic recession, high inflation, and interest rate hikes.
While a bear market can be a scary time for investors, it is important to remember that stock prices are always cyclical. After a bear market comes a bull market, better known as the period when prices start to rise again.
Thus, these incidents should be seen as an opportunity to buy low and sell high. When the next bull market comes around, investors who have bought during the bear market will be in a favourable position to turn a profit.
Related Reading: A History of Financial Crises in Canada
Are we in a bear market in Canada?
We’re in the midst of a bear market right now, but how does it compare to others in history?
The current market began in February 2020 and has continued on until early 2024. Unfortunately, there doesn’t seem to be an uptick to a bull market yet, despite investor’s wishes. So far, it has been one of the longest on record. Many experts believe that we still have a way to go before we see an end.
Of course, predicting the future is always tricky business, and no one can say for certain where the market will head in the months or years ahead. But by looking at past bear markets, we can get a better sense of what to expect.
For example, the last major bear market began in 2007 and lasted for almost three years. During that time, the stock market lost roughly 57% of its value. While that may sound bad, it’s important to remember that even during prolonged incidents, there are periods of temporary relief. In fact, even during the current stint there have been brief rallies where the market has posted gains.
While no one knows exactly what the future holds, history tells us that bear markets are a normal part of the investing cycle. Over time, the stock market has always recovered from these downturns and gone on to reach new heights.
Is it good to buy in a bear market?
There’s no question that buying in a bear market can be a risky proposition. Prices are down, so there’s less room for error. And if the market continues to decline, you could end up losing money. Also, not everyone has a ton of cash available to invest during a bear market. It could either be tied up in existing investments or be used up during periods of high inflation.
But there are also potential rewards. Prices are lower, so you can get more for your money. And if you’re investing for the long term, you’re more likely to come out ahead by buying when prices are down and selling when they rebound.
Of course, there’s no guarantee that the market will rebound and you’ll make a lucrative profit. But if you’re prepared to take a gamble, buying in a bear market could pay off handsomely. Just be sure to do your homework first and understand the risks involved.
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The average length of bears
As investors, we’re always keeping our eyes open for opportunities. And while it’s important to be opportunistic, it’s also important to be prepared for the worst.
Let’s take a look at the average length of a bear market. By understanding how long these downturns typically last, we can better equip ourselves to deal with them when they do occur.
How long does a bear market last?
That’s a question that plagues investors every time the stock market starts to head south. Unfortunately, the answer is that there’s no surefire way to tell.
Bear markets can last for months, or even years. On average, they tend to last around 289 days, which is just shy of a year, but they can vary widely in length. In fact, they typically occur every 3 to 5 years, so we were long overdue in Canada.
So, what can you do in response? The best thing you can do is to stay calm and invest wisely. If you happen to have a little extra cash on hand, now might be a good time to buy some stocks on the cheap side. Who knows, you might even make a killing when the market inevitably recovers!
What is the longest bear market in history?
Bear markets are a fact of life for investors. They’re periods when stocks decline in value, and they can last for months or even years. While no one enjoys these downturn events, they’re an inevitable part of the investment cycle. You might be wondering, what is the longest bear market in history?
The answer may surprise you. According to data from S&P Global, the longest lasted 929 days. That’s about two and a half years. The bear market began in March 2000 and ended in October 2002. This was better known as the dot com bubble. During that time, the S&P 500 Index fell by more than 37%.
This bear market was preceded by an amazing bull market in internet stocks. In the late 1990s, investors poured money into dot-com companies, driving up stock prices to unsustainable levels. When the bubble finally burst, it ushered in a prolonged period of decline.
Thankfully, bear markets don’t last forever. Eventually, stock prices will bottom out and begin to recover. If you’re patient, you’ll be rewarded for riding out the storm.
How long do bear markets last in Canada?
On average, Canadian bear markets last for 11 months.
The longest could be from February 2020 up to now while the shortest was recorded in August until October 1987 which was for 3 months. The second longest in Canada lasted for 23 months from September 2000 to July 2002.
If we look at the frequency of the bear markets, it happens around every 3 years, on average. From 1956 until 2020, there have been more than 13 in Canada, with 2020 being the most recent one.
During a bear market, stocks tend to fall by 20% or more from their peak and can last for months or even years. A typical rebound after the circumstance is about 50%. However, it’s important to note that not all bears are equal and some could see stocks fall by as much as 60% or more.
In general, you want to avoid trying to time the market. It’s impossible to know when the bottom will be exactly until after it’s already happened. Instead, focus on creating a well-diversified portfolio that can weather any storm.
How do you know when a bear market is over?
Many people believe they can tell when a bear market is over by looking at the stock prices. However, stock prices are just one indicator of the health of a market, and they can often be misleading.
For example, a sudden drop in stock prices may appear to signal the end of a bear market, but the reality is that prices can continue to fall for some time after the initial decline. Likewise, a sharp rebound in stock prices may give the impression that the market has recovered, but this could simply be a temporary rally before prices resume their downward trend.
If stock prices are not a reliable indicator of when a bear market is over, what should you look for?
One helpful rule of thumb is to look at the breadth of the market. In other words, pay attention to how many stocks are rising or falling. If there are more stocks falling than rising, then it is likely that the occurrence is not yet over.
On the other hand, if there are more stocks rising than falling, then it is a good sign that the worst of the decline may be over and the market is starting to recover. Of course, no one can say for certain when a bear market will end, but by paying attention to indicators like breadth and momentum, investors can get a better sense of when the tide may be turning.
In addition, analysts also watch for increases in consumer confidence and spending. When people feel confident about the economy and their own finances, they’re more likely to open their wallets and make purchases. Also, experts look at indicators such as unemployment and inflation rates. When these numbers improve, it’s usually a good sign that the economy is improving as well.
So next time you’re wondering if the bear market is finally over, keep an eye on these key indicators – they’ll give you a pretty good sense!
How do you survive a bear market?
Ultimately, bear markets are characterized by shrinkage in economy and markets. How you weather a bear market depends on your financial circumstances. But generally speaking, people tend to become more frugal in a bear market to stay afloat financially. This means spending less and setting more aside for emergencies.
Furthermore, it’s important not to panic during tough financial times. Sometimes, people panic sell investments because they become fearful when they see the price plummeting. Rather, it’s best to hold onto investments and wait until they recover in a bull market. Also, this is why it’s important to diversify your investments so you aren’t worried about the falling prices of some, while others remain stable.
Related Reading: Benner Cycle: Predicting the Future
Final Thoughts
Even though it’s impossible to predict when the current bear market will end or the next bull market will begin, knowing what to expect and preparing can help you stay ahead of the game. In addition, historical trends provide valuable insights. As the old saying goes, history repeats itself.
We hope this article has helped you better understand bear markets – what they are, how long they last on average, and some tips for getting through them. Stay tuned for more investing insights from our team!