Bear market

A bear market is a sustained drop of 20% or more in a major stock index from its recent peak, lasting at least two months, paired with pessimistic investor sentiment. Schwab’s bull-and-bear-market explainer and the Federal Reserve’s S&P 500 index series at FRED both use that 20% threshold as the working definition.

The name comes from how a bear attacks: swiping its paws downward. A bull, by contrast, thrusts its horns up, which is why rising markets get the opposite label. Both labels stuck because traders needed quick shorthand for direction and mood.

Bear markets aren’t just paper losses. They reshape hiring, capex plans, IPO calendars, and household spending, so the term shows up well beyond Wall Street. You’ll hear it in earnings calls, central-bank speeches, and outsourcing reviews when clients tighten budgets.

Investors also distinguish between cyclical bears, which last months and track the business cycle, and secular bears, which can grind on for years inside a wider economic slowdown. The label you use changes how you plan, hedge, and allocate cash.

How it works

A bear market is measured against the most recent closing high of a broad index, usually the S&P 500 in the U.S., the FTSE 100 in the U.K., or the Nikkei 225 in Japan. Once the index closes 20% below that peak, the bear label applies. It ends when the index closes 20% above the trough, which then becomes the start of a new bull cycle.

Most cycles move through four loose phases:

1. Distribution. Prices are still near highs, but big holders start selling into strength. Sentiment is positive but thinning.
2. Decline. Prices fall sharply, often on weakening earnings or a macro shock. Trading volume rises.
3. Rebound trap. Speculators chase short-term bounces. Some assets recover, then roll over again.
4. Capitulation and base. Selling slows, valuations look cheap, long-term buyers return, and the index transitions toward a new bull market.

Causes vary, but recessions, rate shocks, and credit events do most of the heavy lifting. The Federal Reserve’s open-market record shows seven rate hikes totalling 425 basis points in 2022 alone — the sharpest tightening cycle in four decades — which lined up with the S&P 500’s bear market that year.

Bear markets aren’t the same as corrections (a 10–19% drop) or crashes (a sudden double-digit fall over days). Duration matters: the 20% threshold has to hold for at least two months for the label to apply.

Examples

Global financial crisis, 2007–2009. The S&P 500 fell roughly 57% between October 2007 and March 2009, the deepest bear market since the Great Depression. The National Bureau of Economic Research dated the underlying U.S. recession from December 2007 to June 2009.

COVID-19 bear market, 2020. Stocks crashed from a February 19 peak to a March 23 trough, about 34% in 33 days, the fastest bear market on record. The NBER pegged the recession at February to April 2020, the shortest U.S. recession ever recorded.

Inflation and rate-hike bear, 2022. The S&P 500 entered bear-market territory in June 2022 after the Federal Reserve started its sharpest hiking cycle in four decades. The index closed the year down 19.4%, with growth and tech stocks taking the hardest hit.

Japan’s Nikkei, 1990s. The Nikkei 225 peaked near 38,915 in December 1989 and didn’t reclaim that level for more than three decades. It’s the benchmark example of a prolonged “secular” bear market, often cited in macro debates today.

Related terms

• Bull market: a sustained 20%+ rise from a recent low, the bear’s opposite mood.
• Recession: a broad economic contraction; often, but not always, overlaps with a bear market.
• Volatility: the speed and size of price moves, which usually spikes inside a bear.
• Hedging: strategies investors use to offset downside, more common during bears.
• Diversification: spreading exposure across assets to reduce concentrated bear-market damage.
• Risk management: the broader playbook firms run during downturns.
• Capital expenditure: big-ticket spending that tends to get deferred when the market turns.

FAQ

How long does a bear market last?

Since 1929, U.S. bear markets have lasted about 9 to 14 months on average — though the 2020 version ended in 33 days and Japan’s post-1989 slump dragged on for decades. Length depends on what triggered the drop and how policy responds.

Is a bear market the same as a recession?

No. A bear market measures stock prices; a recession measures broader economic output, jobs, and spending. They often overlap because falling earnings and hiring drag both down, but stocks can fall without a recession and vice versa.

Should you sell during a bear market?

Most index investors who keep buying through the drop come out ahead within a few years. Selling at the bottom locks in losses. The right answer depends on your time horizon, cash needs, and risk appetite, so check with a licensed adviser.

What stocks do well in a bear market?

Defensive sectors such as consumer staples, utilities, and healthcare tend to hold up better because demand for food, power, and medicine doesn’t disappear in a downturn. Cash, short-dated government bonds, and some commodities can also outperform during stretches when growth stocks underperform.

How do businesses respond to bear markets?

Most firms tighten hiring, delay capex, and review supplier costs. Outsourcing inquiries often rise in bear markets because labour arbitrage protects margin without forcing deep layoffs at headquarters, especially in finance, customer support, and back-office roles.

What ends a bear market?

The index closing 20% above its trough marks the formal end — though confidence usually returns well before the math catches up. Behind the scenes, that turn requires falling inflation, easier monetary policy, or a clear earnings rebound that pulls buyers back in.

If your business is rethinking spend through a bear cycle, explore outsourcing options to keep growth plans funded without bloating headcount.