It’s official: The U.S. is in a bear market, which means the S&P 500 index closed 20% below its peak close. It is the first time in two years — since early 2020 — that investors have seen a bear market, GOBankingRates reported.
Reuters confirmed the bear market on June 13 when the S&P 500 closed 21.8% below its Jan. 3, 2022, record high. According to Reuters, the average bear market typically bottoms out after a little more than 12 months, and then takes two years to fully rebound.
But other analysts have completely different assessments of how long a bear market usually lasts. These figures range from roughly nine-and-a-half months to 13 months, with another 27 to 38 months before the market rebounds to previous levels.
But how long will this specific, pandemic-fueled, inflation-driven bear market last? As the saying goes, investors are continuing to live in unprecedented times and this bear market may not follow traditional formulas. For instance, the shortest bear market ever took place at the start of the pandemic, lasting just 33 days before recovery.
What Kind of Bear Market Is This?
Seeking Alpha identifies two types of bear markets: large corrections and longer-term bears. Large corrections are typically sparked by central bank action, such as Fed rate cuts, or world events, like the end of the Gulf War in 1990. The pandemic-related bear of 2020 also falls into this category.
Longer-term bear markets tend to last more than a year and are caused by market imbalances that can’t be resolved by rate cuts. With inflation peaking right now, the Fed is very unlikely to cut interest rates to try to reverse the bear market — and investors could be looking at a long-term bear.
Will This Bear Market Be Accompanied by a Recession?
Some experts point out that the faster the bear market occurs, the quicker it will bounce back. The current market began its decline in Jan. 2022, roughly 190 days ago, according to GOBankingRates. This is much quicker than the historical average of 251 days to reach bear status.
The Denver Post cites an average recovery time of roughly one year once a bear market reaches bottom. But that can expand to 15 months if the bear market is accompanied by a recession.
So, What’s the Consensus On How Long This Bear Market Will Last?
With all this in mind, including how fast the market dove into bear territory — and remaining questions as to whether markets are already close to the bottom — investors could be looking at a few more months of bear territory and another year or so for recovery. On the other hand, the bear market could potentially last 15 months or more if the Fed’s actions do not help stem inflation and prevent a recession.
Of course, investor sentiment will also have a lot to do with how long this bear market lasts. “Persistent inflation, another Fed policy mistake and recession fears have unnerved investors,” Oanda senior market analyst Edward Moya told Forbes. He predicted that widespread selling of investments will continue until the Fed “starts to show signs that they are worried about financial conditions and that they may stop tightening so aggressively.”
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