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What is a Bear Market and Why Does It Matter?

Investing

When markets drop 20% or more from recent highs, they enter what’s known as a bear market. It’s a term that can spark fear in headlines and investor sentiment alike. But understanding what a bear market is and how to react can make all the difference in keeping your long-term goals on track.

What Causes a Bear Market?

Bear markets can be triggered by various factors:

  • Rising interest rates
  • Economic slowdowns or recessions
  • Geopolitical uncertainty
  • Corporate earnings declines

Often, it's not just one event but a combination of pressures that lead to sustained market downturns.

How Long Do Bear Markets Last?

Historically, bear markets are shorter than bull markets (which are periods of rising stock prices). On average, bear markets last about a year, while bull markets last several years. The long-term trend of the market is upward, even with occasional dips.

  • While bear markets are unavoidable, bull markets are much longer, with larger returns.
  • Since 1956, the average bear market has lasted one year, two months, with a decline of 36%.
  • In contrast, the average bull market lasts 5 years 9 months and returns 192%.


What Should You Do During a Bear Market?

Stay invested. While it may be tempting to pull out of the market during a downturn, doing so often means locking in losses and missing the rebound.Review your risk tolerance. A bear market is a good time to reassess your portfolio, not necessarily to make big changes, but to ensure your strategy still aligns with your goals.Avoid emotional decisions. This is perhaps most important. Investing based on fear or panic is rarely productive. Market volatility is uncomfortable, but it can be managed with discipline and a solid plan. When markets are spiraling or volatile, consult with your financial advisor before making sizable financial decisions. 

Why Bear Markets Matter

Bear markets matter because they test your commitment to long-term investing. They offer lessons in patience, diversification, and emotional resilience, and often create opportunities.


Feeling uncertain about the market?

At Sandbox Financial Partners, we help clients make informed, confident decisions, no matter the market cycle or how bad the headlines get. 

Reach out to our team today (click here).