Bear Market

A bear market is a sustained fall of 20% or more in a major stock index from its recent peak, held for at least two months and paired with pessimistic investor sentiment. The label tracks investor mood as much as the underlying numbers.

The name comes from how a bear attacks, swiping its paws downward. A bull thrusts its horns up, which is why rising markets carry the opposite label. Traders needed quick shorthand for direction, and both stuck.

Bear markets aren’t only paper losses. They reshape hiring plans, capital budgets, IPO calendars, and household spending, which is why the phrase turns up in earnings calls, central-bank speeches, and outsourcing reviews.

Analysts also split bears into two types. Cyclical bears run for months and track the business cycle. Secular bears grind on for years inside a wider slowdown, and the one you’re in changes how you hedge, hire, and hold cash.

Key takeaways

• A bear market is a 20% or deeper fall from a recent index peak, sustained for two months.
• Corrections stop at 19%; crashes reach the same depth in days rather than months.
• The cycle ends when the index closes 20% above its trough, starting a fresh bull run.
• Since 1929, US bear markets have averaged roughly 9 to 14 months from peak to trough.
• Buyers often widen outsourcing programmes in bear cycles to protect margin without deep layoffs.

How it works

A bear market is measured against a broad index’s most recent closing high — the S&P 500 in the United States, the FTSE 100 in the United Kingdom, or the Nikkei 225 in Japan. Once the index closes 20% below that peak, the label applies.

It ends when the index closes 20% above the trough. That close marks the start of a new bull cycle, which is why the same 20% number defines both moods.

Most cycles move through four loose phases:

• Distribution. Prices sit near highs, but large holders start selling into strength.
• Decline. Prices fall hard on weakening earnings or a macro shock, and volume rises.
• Rebound trap. Speculators chase short-lived bounces; some assets recover, then roll over again.
• Capitulation and base. Selling slows, valuations look cheap, and long-term buyers return.

Causes vary, but recessions, rate shocks, and credit events do most of the heavy lifting. The Federal Reserve raised its policy rate seven times in 2022, a total of 425 basis points — the sharpest tightening cycle in four decades.

You can run the test yourself. The Federal Reserve’s S&P 500 index series at FRED publishes the daily closing level, so measuring the drawdown from peak to trough is simple subtraction.

Bear markets aren’t corrections or crashes, though the words get swapped in headlines. Depth and duration separate them, and the two-month rule is what keeps a sharp fall from being labelled early.

Examples

Four downturns explain most of what the term means in practice: 2007 to 2009, 2020, 2022, and Japan’s post-1989 slump. Each differed in depth and speed, and each reshaped corporate spending in a different way.

Global financial crisis, 2007–2009. The S&P 500 fell roughly 57% from its October 2007 peak to the March 2009 trough. The National Bureau of Economic Research, the official arbiter of US recessions, dated that downturn December 2007 to June 2009.

COVID-19 crash, 2020. Stocks fell about 34% between the February 19 peak and the March 23 trough, 33 days in all, the fastest bear market on record. The NBER put the recession at February to April 2020, the shortest in US history.

Inflation and rate-hike bear, 2022. The S&P 500 entered bear territory in June 2022, then closed the year down 19.4%. Growth and technology stocks took the worst of it as discount rates climbed and cheap money disappeared.

Japan’s Nikkei, 1990s onward. The Nikkei 225 peaked near 38,915 in December 1989 and took more than three decades to reclaim that level, finally clearing it in February 2024. It remains the textbook secular bear.

Charles Schwab, the US brokerage, uses the same 20% threshold in its bull-and-bear-market explainer, and its investor learning library hosts the wider series. The arithmetic is fixed, so the definition rarely gets argued.

The 2022 bear played out in operating budgets as much as in portfolios. Buyers who froze headcount kept programmes running by shifting support and back-office work offshore, protecting margin without gutting the in-house team.

Related terms

Bear markets sit inside a family of terms that describe direction, damage, and defence. These seven show up most often alongside the phrase, and knowing where each one starts and stops keeps market commentary from blurring into noise.

• Bull Market: a sustained 20% rise from a recent low and the bear’s opposite mood.
• Recession: a broad contraction in output and jobs that often, but not always, overlaps a bear market.
• Volatility: the speed and size of price moves, which usually spikes inside a bear market.
• Hedging: the practice of offsetting downside exposure, more common once prices start falling.
• Diversification: the spreading of exposure across assets to limit concentrated bear-market damage.
• Risk Management: the wider playbook firms run through downturns and demand shocks.
• Capital Expenditure: big-ticket spending that gets deferred first when the market turns.

FAQ

How long does a bear market last?

Since 1929, US bear markets have run about 9 to 14 months on average. The 2020 version ended in 33 days, while Japan’s post-1989 slump dragged on for decades. Length depends on the trigger and the policy response.

Is a bear market the same as a recession?

No. A bear market measures stock prices; a recession measures output, jobs, and spending across the whole economy. Stocks can fall without a recession, and a recession can arrive without a bear.

Should you sell during a bear market?

Most index investors who keep buying through the fall come out ahead within a few years, and selling at the bottom locks in the loss. The right call depends on your time horizon, cash needs, and risk appetite, so speak to a licensed adviser.

What stocks do well in a bear market?

Defensive sectors — consumer staples, utilities, and healthcare — usually hold up better, because demand for food, power, and medicine doesn’t vanish in a downturn. Cash, short-dated government bonds, and some commodities can also outperform while growth stocks lag.

How do businesses respond to bear markets?

Most firms tighten hiring, defer capital projects, and reopen supplier contracts. Outsourcing enquiries tend to rise, because moving finance, customer support, or back-office work offshore protects margin without forcing deep layoffs at headquarters.

What ends a bear market?

The bear formally ends when the index closes 20% above its trough, though confidence usually turns well before the arithmetic does.

If a bear cycle is squeezing your budget, explore outsourcing options with Outsource Accelerator to keep growth plans funded without adding headcount at home.