The History of the Financial Markets in the United States and Their Recovery

What are the causes of a bear market?

Stock prices and other securities are influenced by a variety of factors, including investor confidence. The price of a stock tends to decline when investors lose confidence in its performance, whether it is due to the stock itself, the supporting company, or the strength of the economy in general. Investors may sell their securities to avoid losses, and if this happens extensively, it can cause a wave of selling, which in turn leads to lower prices.

Historical Market Declines

Following the outbreak of the COVID-19 pandemic in March 2020, economies were damaged, and many investors anticipated a bear market in its wake. The stock market experienced a crash, with the Dow Jones Industrial Average and the S&P 500 declining by more than 20% (specifically 33%) from their highs in February. However, the bear market of 2020 turned out to be short-lived. The stock market saw healthy gains since the crash in March 2020, with the S&P Index recording a 26% return in 2021.

Recovery from a Bear Market

Bear markets are often followed by bull markets. Bull markets are characterized by a 20% or greater increase in stock prices. There have been many bull markets since 1930. While bull markets often last for years, a significant portion of gains usually accumulates during the first months of a stock market rally.

Investing During a Bear Market

If you have cash, you may want to consider buying opportunities during a bear market. Historically, the price-to-earnings (P/E) ratio of the S&P 500 has been significantly lower during bear markets. When investors are more confident, the price-to-earnings ratio typically increases, making stock valuations higher. Professional investors often like bear markets because stock prices are considered “on sale.”

Frequently Asked Questions

What is the difference between a bear market and a bull market?

Should I sell my stocks during a bear market?

How does a bear market end?

Sources:

– Crestmont Research. “Percentage Positive and Negative Days Across Various Periods: S&P 500 Index.”

– Yahoo Finance. “NASDAQ Composite.”

– Yahoo Finance. “S&P 500.”

– Yardeni Research. “Stock Market Briefing: S&P 500 Bull & Bear Market Tables,” Page 4.

– Yardeni Research. “Stock Market Briefing: S&P 500 Bull & Bear Market Tables,” Page 3.

– Yardeni Research. “Stock Market Briefing: Fundamental Stock Market Indicator,” Page 2.

– Granum Series Trust. “FORM N-CSR: Certified Shareholder Report of Registered Management Investment Companies.”

Source: https://www.thebalancemoney.com/u-s-stock-bear-markets-and-their-subsequent-recoveries-2388520