On March 11, 2020, the Dow Jones Industrial Average entered a bear market

for the first time in 11 years. The next day, March 12, 2020, the S&P 500 and
the Nasdaq followed suit. The bear market in U.S. equities in 2020 could go
down as one of the most severe bear markets in history.

KEY TAKEAWAYS

 Bear markets are defined as sustained periods of downward trending

stock prices, often triggered by a 20% decline from near-term highs.
 Bear markets are often accompanied by an economic recession and
high unemployment, but bear markets can also be great buying
opportunities while prices are depressed.
 Some of the biggest bear markets in the past century include those that
coincided with the Great Depression and Great Recession.
 The bear market that began on March 11, 2020 was brought on by
many factors including the spread of the COVID19 pandemic.
When The Bear Comes
One definition of a bear market says markets are in bear territory when stocks,
on average, fall at least 20% off their high. But 20% is an arbitrary number,
just as a 10% decline is an arbitrary benchmark for a correction.

Another definition of a bear market is when investors are more risk-averse

than risk-seeking. This kind of bear market can last for months or years as
investors shun speculation in favor of boring, sure bets.

Several leading stock market indexes around the globe endured bear market
declines in 2018. In the U.S. in December, the small cap Russell 2000 Index
(RUT) bottomed out 27.2% below its prior high. The widely-followed U.S. large
cap barometer, the S&P 500 Index (SPX), just missed entering bear market
territory, halting its decline 19.8% below its high.

Similarly, oil prices were in a bear market May 2014 to February 2016. During
this period oil prices fell continually and unevenly until they reached a bottom.

Bear markets can happen in sectors and in the broadest markets. The longest
time horizon for investors is usually the time between now and whenever they
will need to liquidate their investments (for example, during retirement), and
over the longest-possible term, bull markets have gone higher and laster
longer than bear markets.

History and duration of bear markets.

Bears of All Shapes and Sizes
Bear markets have come in all shapes and sizes, showing significant variation
in depth and duration.
The bear market that started in March of 2020 began due to a number of
factors including shrinking corporate profits and possibly the sheer length of
the 11-year bull market that preceded it. The immediate cause of the bear
market was a combination of persistent worries about the effect of the
COVID19 pandemic on the world economy and an unfortunate price war in oil
markets between Saudi Arabia and Russia that sent oil prices plunging to
levels not seen since the bursting of the dotcom bubble in 2000, 9/11 2001,
and the second Gulf War.

Between 1926 and 2017, there have been eight bear markets, ranging in
length from six months to 2.8 years, and in severity from an 83.4% drop in the
S&P 500 to a decline of 21.8%, according to analysis by First Trust
Advisors based on data from Morningstar Inc. The correlation between these
bear markets and recessions is imperfect.

This chart from Invesco traces the history of bull and bear markets and the
performance of the S&P 500 during those periods.

courtesy Invesco.
At the end of 2019, analysts suspected a bear market might be coming, but
they were divided on its duration and severity. For example, Stephen
Suttmeier, the chief equity technical strategist at Bank of America Merrill
Lynch, said he believed there would be a "garden-variety bear market" that
would last only six months, and not go much beyond a 20% dip. At the other
end of the spectrum, hedge fund manager and market analyst John
Hussman predicted a cataclysmic 60% rout.

Bear Markets Without Recessions

Three of the eight bear markets listed above were not accompanied by
economic recessions, according to FirstTrust. These included brief six month
pullbacks in the S&P 500 of 21.8% in the late 1940s and 22.3% in the early
1960s. The stock market crash of 1987 is the most recent example, which was
a 29.6% drop lasting only three months, according to First Trust.

Concerns about excessive equity valuations, with selling pressures

exacerbated by computerized program trading, are widely recognized as the
trigger for that brief bear market.

Bear Markets Before Recessions

In three other bear markets, the stock market decline began before a
recession officially got underway. The dotcom crash of 2000-2002 also was
spurred by a loss of investor confidence in stock valuations that had reached
new historic highs.
The S&P 500 tumbled by 44.7% over the course of 2.1 years, punctuated by a
brief recession in the middle. Stock market declines of 29.3% in the late 1960s
and 42.6% in the early 1970s, lasting 1.6 years and 1.8 years, respectively,
also began ahead of recessions, and ended shortly before those economic
contractions bottomed out.

The Nastiest Bear Markets (So Far): 1929 and 2007-'09

The two worst bear markets of this era were roughly in sync with recessions.
The Stock Market Crash of 1929 was the central event in a grinding bear
market that lasted 2.8 years and sliced 83.4% off the value of the S&P 500.

Rampant speculation had created a valuation bubble, and the onset of

the Great Depression, itself caused partly by the Smoot-Hawley Tariff Act and
partly by the Federal Reserve's decision to rein in speculation with a
restrictive monetary policy, only worsened the stock market sell-off.

The bear market of 2007-2009 lasted 1.3 years and sent the S&P 500 down
by 50.9%. The U.S. economy had slipped into a recession in 2007,
accompanied by a growing crisis in subprime mortgages, with increasing
numbers of borrowers unable to meet their obligations as scheduled. This
eventually snowballed into a general financial crisis by September 2008,
with systemically important financial institutions (SIFIs) across the globe in
danger of insolvency.

Complete collapses in the global financial system and the global economy
were averted in 2008 by unprecedented interventions by central banks around
the world. Their massive injections of liquidity into the financial system,
through a process called quantitative easing (QE), propped up the world
economy and the prices of financial assets such as stocks by pushing interest
rates down to record low levels.

As noted above, the methods for measuring the length and magnitude of bull
and bear markets alike differ among analysts. According to criteria employed
by Yardeni Research, for example, there have been 20 bear markets since
1928.