Investors are increasingly concerned that Wall Street is on the precipice of another bear market, driven by the Trump administration’s escalating trade war and the potential for global economic fallout.
The current market downturn evokes the rapid and volatile decline of 2020, when the S&P 500 plummeted 34 per cent in a single month, marking the shortest bear market on record.
While the most recent bear market occurred in 2022, the current climate of uncertainty surrounding tariffs and international trade has sparked renewed anxieties.
Here are some common questions about bear markets:
Why is it called a bear market?
A bear market is a term used by Wall Street when an index such as the S&P 500 or the Dow Jones Industrial Average has fallen 20 per cent or more from a recent high for a sustained period of time.
Why use a bear to refer to a market slump? Bears hibernate, so they represent a stock market that’s retreating. In contrast, Wall Street’s nickname for a surging market is a bull market, because bulls charge.
The S&P 500, Wall Street’s main barometer of health, was down 1.2 per cent in Monday afternoon trading. It’s now 18.4 per cent below the all-time high it set on 19 February.
The FTSE 100 was down more than 3 per cent again in Monday trading – meaning it has more than erased earlier 2025 gains and is back to price levels last seen a year ago. That’s clearly a significant drop-off, but it is far from catastrophic in overall stock market terms: the FTSE 100 was at a record level, an all-time high, on 3 March.
On Tuesday morning, it opened in the green.
The Dow industrials fell 1.8 per cent, and the tech-heavy Nasdaq composite, which already was in a bear market, dropped 0.9 per cent.
The most recent bear market for the S&P 500 ran from 3 Janauary to 12 October in 2022.
What’s bothering investors?
The trade war has ratcheted up fear and uncertainty on Wall Street over how businesses and consumers will respond.
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President Donald Trump followed through on tariff threats last week by declaring a 10 per cent baseline tax on imports from all countries and higher tariff rates on dozens of nations that run trade surpluses with the United States.
Global markets cratered the next day, and the sell-off deepened after China announced it would retaliate with tariffs equal to the ones from the U.S.
Tariffs cause economic pain in part because they’re a tax paid by importers that often gets passed along to consumers, adding to inflationary pressure. They also provoke trading partners into retaliating, which can hurt all economies involved.
Import taxes can also cause economic damage by complicating the decisions businesses have to make, including which suppliers to use, where to locate factories and what prices to charge. And that uncertainty can cause them to delay or cancel investments that help drive economic growth.
The tariffs come at a time when the U.S. economy is already showing signs of slowing. Markets are also worried that tariffs could fuel inflation, which recently ticked higher.
How long do bear markets last and how deep do they go?
On average, bear markets have taken 13 months to go from peak to trough and 27 months to get back to breakeven since World War II.
The S&P 500 index has fallen an average of 33 per cent during bear markets in that time. The biggest decline since 1945 occurred in the 2007-2009 bear market, when the S&P 500 fell 57 per cent.
History shows that the faster an index enters into a bear market, the shallower they tend to be. Historically, stocks have taken 251 days (8.3 months) to fall into a bear market. When the S&P 500 has fallen 20 per cent at a faster clip, the index has averaged a loss of 28 per cent.
The longest bear market lasted 61 months and ended in March 1942. It cut the index by 60 per cent.
When is a bear market over?
Generally, investors look for a 20 per cent gain from a low point as well as sustained gains over at least a six-month period. It took less than three weeks for stocks to rise 20 per cent from their low in March 2020.
Should investors sell now?
If you need the money now or want to lock in the losses, yes. Otherwise, many advisers suggest riding through the ups and downs while remembering the swings are the price of admission for the stronger returns that stocks have provided over the long term.
While dumping stocks would stop the bleeding, it would also prevent any potential gains. Many of the best days for Wall Street have occurred either during a bear market or just after one ended. That includes two separate days in the middle of the 2007-2009 bear market when the S&P 500 surged roughly 11 per cent, as well as leaps of better than 9 per cent during and shortly after the monthlong 2020 bear market.
Advisers suggest putting money into stocks only if it will not be needed for several years. The S&P 500 has come back from every one of its prior bear markets to eventually rise to another all-time high.
The down decade for the stock market following the 2000 bursting of the dot-com bubble was a notoriously brutal stretch, but stocks have often been able to regain their highs within a few years.
