What is a Bear Market and Are We in One Now?
A bear market is generally considered to be a drop of 20% in stock value from one of the three major market indexes (Dow Jones, S&P 500, or NASDAQ) from recent all-time highs. Many economists and financial institutions declared the United States economy signaling the start of a bear market following market reactions to President Donald Trump’s instituting tariffs across a broad swathe of the world in April of 2025. The market dropped over 14% in just four days startling both retail investors and traditional capital. Two weeks after the initial launch of Trump’s tariffs, the market has recovered somewhat but futures are still uncertain which has many people wondering what to do during a stock market downturn.
Bear Market vs. Bull Market: What You Need to Know and How to Invest Wisely in a Downturn
The stock market, with all its volatility, can be a source of anxiety for investors, especially when prices begin to plummet and news headlines scream words like “recession,” “correction,” or, the focus of today’s article, “bear market.” For both new and seasoned investors, understanding the nature of a bear market versus a bull market is critical to making informed decisions. This guide will explore what each term means, what being in a bear market implies, and offer practical investment strategies for navigating the tough times ahead.
What Is a Bull Market?
A bull market is characterized by rising stock prices and general investor optimism. It typically refers to a period when stock prices increase by 20% or more after a decline. Economic indicators such as GDP growth, low unemployment, and strong corporate profits usually accompany bull markets.
Investors in bull markets tend to be more confident, driving further price increases. This creates a virtuous cycle where good economic news leads to higher stock prices, which in turn stimulates more buying activity.
What Is a Bear Market?
In contrast, a bear market is defined as a decline of 20% or more from recent highs in broad market indexes such as the S&P 500, Dow Jones Industrial Average, or Nasdaq Composite. Bear markets can last for months or even years and are often accompanied by a slowing economy, rising unemployment, and declining corporate profits.
Bear markets reflect widespread pessimism and fear. Investors start selling off stocks to minimize losses, causing further price drops. This negative feedback loop can make bear markets particularly brutal for unprepared investors. It can also take a psychological toll on investors who end up pulling out at a loss due to the fear that the market will continue to decline.
What Does It Mean to Be in a Bear Market?
Being in a bear market means that investors are facing sustained declines in stock prices. It also means that:
- Investor sentiment is negative. Fear and uncertainty dominate, which can lead to irrational selling and market overreactions.
- Volatility increases. Markets often swing wildly, driven by panic and speculation rather than fundamentals.
- Opportunities emerge. Ironically, bear markets also present chances to buy high-quality assets at discounted prices.
Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful.” This mindset is essential during bear markets. While many investors panic, long-term thinkers can take advantage of undervalued stocks and strong fundamentals. The stock market has weathered numerous bear markets in the past and many savvy investors see an extended market downturn as an opportunity where stocks and ETFs they like are essentially on sale at a discount. This mindset of opportunity and prosperity can help individuals weather a time that for others is marked with fear and uncertainty.
Causes of Bear Markets
Understanding the causes of bear markets can provide context and help investors prepare. Common triggers include:
- Economic Recession: A shrinking economy often leads to reduced consumer spending and business profits, sparking a bear market.
- Interest Rate Hikes: When the Federal Reserve raises interest rates to combat inflation, borrowing costs rise, which can slow down economic activity.
- Geopolitical Events: Wars, pandemics, tariffs, and political instability can all shock the markets and lead to sharp declines.
- Asset Bubbles: When assets become overvalued, the inevitable correction can lead to a prolonged downturn.
As investor and hedge fund manager Bill Ackman said during the COVID-19 market crash, “Hell is coming.” Although dramatic, this quote reflects the real fear that grips the market during uncertain times.
The Psychology of Bear Markets
Bear markets are not just a financial phenomenon; they are also psychological. Market downturns test investor resolve and emotional discipline.
- Loss Aversion: Investors fear losses more than they value gains, often leading to premature selling. Remember, a loss is only a loss once it is realized.
- Herd Mentality: Seeing others sell creates a snowball effect, driving prices even lower. The average person doesn’t have a strong understanding of the stock market, so don’t invest like the average person.
- Short-Term Thinking: Investors may panic and forget long-term goals in favor of immediate damage control. Delayed gratification is often key to success in investing.
Mark Cuban once advised, “When you don’t know what to do, do nothing.” Sometimes, staying calm and resisting the urge to act hastily is the best course of action.
How Long Do Bear Markets Last?
While it varies, the average bear market lasts around 9 to 14 months, though some have extended for years. The severity of each bear market depends on its underlying causes. For instance:
- The 2008 Financial Crisis bear market lasted about 17 months.
- The COVID-19 bear market was extremely sharp but brief, lasting only about 33 days before recovery began.
Understanding this can help put things in perspective: bear markets, though painful, are temporary. While there is currently a lot of uncertainty in the market due to the implementation of Trump’s tariffs, that uncertainty is never permanent and the market always rebounds over time. Even the longest bear markets are over in a matter of years and it will be those that bear the pain that will reap the rewards.
Smart Investing Tips for a Bear Market
Being in a bear market doesn’t mean you should sit on the sidelines. Here are some time-tested strategies to navigate the downturn:
1. Revisit Your Financial Plan
Ensure your investment strategy aligns with your long-term goals. Risk tolerance, time horizon, and diversification should all be reassessed. While significant market changes like this one shouldn’t cause you to panic, it is always an intelligent move to reassess where things stand when presented with new information so that you can make the best financial decision possible for you and your family.
2. Focus on Quality
Look for companies with strong balance sheets, consistent earnings, and good management. These businesses are more likely to survive downturns and thrive afterward. This is not the time to throw caution to the wind and take a gamble with meme stocks like AMC or GameStop nor should you invest in companies whose stocks have expressed extreme volatility and in recent years like Netflix, Tesla, or SuperMicro as stocks like these will be most poised to take the brunt of market losses since their value is mostly speculative and divorced from market fundamentals.
3. Dollar-Cost Averaging (DCA)
Invest a fixed amount regularly, regardless of market conditions. This strategy reduces the risk of poor timing and allows you to buy more shares when prices are low. The stock market has always rebounded over time so this slow and steady approach can help built real wealth in the long-term as opposed to get-rich-quick stocks that end up leaving more people hoping than they actually help.
4. Maintain a Diversified Portfolio
Avoid putting all your eggs in one basket. Diversification across asset classes (stocks, bonds, real estate, etc.) can cushion losses. While individual stocks or companies may fail, it is unlikely that the entirety of the market or economy will go belly-up.
5. Consider Defensive Stocks
Utilities, healthcare, and consumer staples tend to perform better during downturns, as demand for their products remains steady. Think about what people have to buy, even when the economy is bad.
6. Avoid Market Timing
Trying to perfectly time the market often results in missed opportunities. Stay invested and focus on long-term growth. The market will outperform individual investors in the long-run the vast majority of the time.
7. Keep Emotions in Check
Emotional investing is costly. Stay rational, avoid panic selling, and remember why you invested in the first place. Set goals and a strategy and stick to it as opposed to letting every piece of news, personal or political, influence your decisions.
Historical Perspective: Bear Markets Are Not the End
People are often asking: how long have previous bull markets lasted? Historically, markets have always recovered from bear phases. While each downturn has its unique circumstances, the pattern of recovery is consistent. Three of the most significant bear markets and economic recessions are listed below (the Dot-Com Crash, Great Recession, and Covid-19 lockdowns) and the losses from all three downturns had rectified in a period of between 6 months and 6 years.
| Bear Market | Peak to Trough | Duration | Recovery Time |
|---|---|---|---|
| Dot-com Crash (2000) | -49% | 31 months | ~5 years |
| Great Recession (2008) | -57% | 17 months | ~4 years |
| COVID-19 (2020) | -34% | 1 month | ~5 months |
The takeaway? Stay invested and think long term. The market rewards patience.
Final Thoughts: Weathering the Bear Market Storm
Bear markets are a natural part of the economic cycle. While they can be daunting, they also offer opportunities for strategic investors. By understanding what a bear market is, staying grounded, and following proven investment principles, you can not only survive a downturn – you can thrive afterward. It’s true that President Trumps tariffs have made this a particularly unusual and uncertain bear market, there is no reason to believe that it will be particularly different in the long run than bear markets of the past. Trust the system.
Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” The key to navigating a bear market is patience, perspective, and preparation.
Whether you’re a beginner or a seasoned investor, remember this: market downturns don’t last forever, but your financial goals do. Stay focused, stay informed, and most importantly—stay calm.