Traders on the floor of the NYSE, June 13, 2022.
It’s official, according to the folks who decide which markets are bulls and which are bears, not to mention which stocks go into the Dow Jones Industrial Average and the S&P 500.
U.S. stocks on Monday entered a bear market because the S&P 500 closed more than 21% below its all-time record close reached as recently as last January, S&P Global Dow Jones Indices senior index analyst Howard Silverblatt wrote.
Stocks had been flirting with a bear market for the past several weeks on an intraday basis, but had never actually closed below 3837, the level S&P Global needed to see in order to officially declare one.
S&P Global says a 20% decline in the S&P 500 on a closing basis from its previous peak is all it takes to define a bear market. Which means that this bear market is already more than five months old, since the S&P 500 all-time high came on January 3.
Source: S&P Dow Jones Indices
Since the modern S&P 500 index began in the late 1920s, the average bear market has translated into a 38% price decline lasting an average of almost 19 months.
But that’s only the average. The longest bear market lasted 62 months, between 1937 and 1946, while the worst decline came as the Great Depression got underway and stocks plunged 86%.
The causes of every bear market are different, of course. This one is defined by the Fed tightening interest rates in reply to galloping inflation that’s running at the fastest clip in 40 years, and the first European land war since World War 2.
The last bear market in early 2020 was caused by the onset of Covid-19, a global pandemic, and the economic contraction that followed. The Global Financial Crisis created the 2007-2009 bear market as the housing market imploded. The bursting of the Tech Bubble led directly to the 2000-2002 bear market.
So, how does S&P Global define the end of a bear market? When the index reaches its low and later rises by 20%. Unfortunately for investors, that can only be known in hindsight.