Bear Market

What counts as a bear market

The conventional rule: a 20% decline from a recent peak, sustained for at least two months. The numbers are arbitrary but widely accepted. A 10–20% decline is usually called a "correction"; a deeper drawdown that doesn't last is a "flash crash."

Different markets see them at different frequencies. The US stock market has had roughly one bear market per decade since 1950. Crypto markets, where volatility runs an order of magnitude higher, see them every few years and they tend to be deeper — 70% to 90% peak-to-trough drawdowns are common.

Notable historical bears

• 1929–32 — the Great Depression bear. The Dow fell 89% from its 1929 peak before bottoming. Recovery to prior highs took 25 years.
• 1973–74 — oil-shock and stagflation bear. S&P down 48%.
• 2000–02 — dot-com bust. NASDAQ fell 78% from peak; S&P fell 49%.
• 2007–09 — Great Financial Crisis. S&P down 57% over 17 months.
• 2020 (COVID) — fastest bear in modern history, peak to bottom in 33 days. S&P down 34%, recovered within months.
• 2022 — inflation/rate-hike bear. S&P down 25%, NASDAQ down 36%, crypto down 75%+.

Why bear markets matter

Three reasons that don't always make it into discussion:

• Average returns include them. When people quote "the stock market returns 10% a year on average," that average is computed across periods that include bear markets. Skipping bears requires successful market timing, which the data suggests very few people manage. Holding through is what produces the long-run return.
• They reset valuations. Bear markets compress price-to-earnings ratios and dividend yields back toward (or below) historical averages, setting up future returns. The best long-run returns historically come from buying after large drawdowns, not after long bull runs.
• They expose leverage. Companies and investors that survived prior bull markets only because they were levered tend to fail in bear markets, which is why bears are usually accompanied by bankruptcies and forced deleveraging.

What investors actually do (and what they should do)

Surveys consistently find that the worst-performing investor cohort during bear markets is the one that panic-sells near the bottom and buys back later. Avoiding this requires holding allocations that you'll actually maintain through volatility — a 90% equity allocation that you abandon in a 30% drawdown produces worse outcomes than a 60% equity allocation you stick with.

Dollar-cost averaging and rhythmic rebalancing both help: the former takes timing decisions out of your hands, the latter forces you to add to losers and trim winners on a fixed schedule.

Crypto bears

Crypto bear markets compress the same ideas more violently. The 2018 bear took Bitcoin from ~$20K to ~$3K (-84%). The 2022 bear took it from ~$69K to ~$15K (-78%) and saw the FTX collapse, the Terra collapse, and forced liquidations across most major lenders. Both ended with prolonged "winters" of 12–18 months at the lows before the next cycle began. The pattern of deep drawdowns followed by even-deeper recoveries has been consistent enough that "buy aggressively in crypto winter, sell in altseason" is widely-known wisdom — and widely-not-followed because it requires sitting through the bottom.

Bull and bear cycles

Bull markets and bear markets aren't symmetric. Bulls tend to be longer (typical US bull market lasts about five years) and grind upward; bears are shorter (typically one to two years) and steeper. In ratio terms, the average bear cuts a meaningful portion of the prior bull's gains, but the long-run trend is up because bulls outweigh bears in time spent and total magnitude.