When Stocks Become Bear Markets

Retirement

Steep downturns of stocks by 20 percent or more are relatively rare, but how long they last could portend damage — for you and the economy.

The S&P 500 on Monday dropped into its second bear market of the pandemic, crossing a symbolic and worrisome threshold as stocks plunge following a meteoric rise over the last two years.

Bear markets — when stocks decline at least 20 percent from their recent peaks — are relatively rare, and they frequently precede a recession. This sell-off, dragging the S&P down from a peak on Jan. 3 (which reflects the new bear market’s starting point), comes as concerns mount over high inflation, the war in Ukraine, Covid and the Federal Reserve’s attempts to rein in the economy.

The most recent bear market, just as the coronavirus began spreading globally, was the shortest on record. Stocks lost a third of their value in 33 days in early 2020, according to data compiled by Ed Yardeni, an economist who tracks stock swings. From there, it took just six months for the S&P to recover, aided by pandemic stimulus and emergency actions by the Federal Reserve.

This downturn might be longer lasting. And it threatens the stability of a large group of retirement-age Americans who are dependent on 401(k) and other stock-heavy retirement accounts: baby boomers.

Stocks have fallen in large part because the Fed has been removing its monetary support, which in addition to propping up the stock market also contributed to the fastest rate of inflation in four decades. The S&P closed just above a bear market in May before recovering, but stocks fell sharply again on Friday following the latest release of government data showing that inflation had accelerated again.

The worry among stock traders is that the Fed could be forced to constrict the economy’s growth in order to bring inflation under control, leading to a recession. While recessions have often followed bear markets, one does not necessarily cause the other.

“It is not that consumer demand is weak yet — spending has held up,” said Paul Ashworth, who is the chief North American economist at Capital Economics. “The fear is that the Fed is going to go very hard, and that leaves us in a recession at some point.”

Not everyone believes a recession is imminent this time, in part because there are areas of the economy that are doing better than in previous bear market moments. Unemployment is near a half-century low, and the economy has regained all but 800,000 of the 22 million jobs lost at the height of coronavirus-related lockdowns. While rising mortgage rates have begun to dampen activity, housing — generally one of the biggest sources of wealth for Americans — remains strong.

Most Americans are exposed to the stock market through their retirement accounts. During steep downturns in the markets, the conventional wisdom for younger workers has often been to do nothing, in part because the markets tend to rise again eventually.

But sometimes stocks can take years to return to their previous levels or reach new highs.




Duration of bear markets since World War II era . . .

Peak

Trough

Duration, in days

1

6/15/48

6/13/49

363

2

7/15/57

10/22/57

99

3

12/12/61

6/26/62

196

4

2/9/66

10/7/66

240

5

11/29/68

5/26/70

543

6

1/11/73

10/3/74

630

7

11/28/80

8/12/82

622

8

8/25/87

12/4/87

101

9

3/24/00

10/9/02

929

10

10/9/07

3/9/09

517

11

2/19/20

3/23/20

33

12

1/3/22

5/20/22

161

so far

. . . and how long it took to recover from them.

Trough

New high

Days from trough to new high

9/22/54

1,927

1

6/13/49

9/24/58

337

2

10/22/57

9/3/63

434

3

6/26/62

5/4/67

209

4

10/7/66

3/6/72

650

5

5/26/70

7/17/80

2,114

6

10/3/74

11/3/82

83

7

8/12/82

7/26/89

600

8

12/4/87

5/30/07

1,694

9

10/9/02

3/28/13

1,480

10

3/9/09

8/18/20

148

11

3/23/20

???

???

12

5/19/22

The duration of the 12 bear markets since the World War II era . . .

Peak

Trough

Decline

Duration, in days

1

June 15, 1948

June 13, 1949

–20.6

%

363

2

July 15, 1957

Oct. 22, 1957

–20.7

99

3

Dec. 12, 1961

June 26, 1962

–28.0

196

4

Feb. 9, 1966

Oct. 7, 1966

–22.2

240

5

Nov. 29, 1968

May 26, 1970

–36.1

543

6

Jan. 11, 1973

Oct. 3, 1974

–48.2

630

7

Nov. 28, 1980

Aug. 12, 1982

–27.1

622

8

Aug. 25, 1987

Dec. 4, 1987

–33.5

101

9

March 24, 2000

Oct. 9, 2002

–49.1

929

10

Oct. 9, 2007

March 9, 2009

–56.8

517

11

Feb. 19, 2020

March 23, 2020

–33.9

33

12

Jan. 3, 2022

May 20, 2022

–21.8

so far

161

so far

. . . and how long it took to recover from them.

New record high

Days from trough to new record high

Trough

Sept. 22, 1954

1,927

1

June 13, 1949

Sept. 24, 1958

337

2

Oct. 22, 1957

Sept. 3, 1963

434

3

June 26, 1962

May 4, 1967

209

4

Oc. 7, 1966

March 6, 1972

650

5

May 26, 1970

July 17, 1980

2,114

6

Oct. 3, 1974

Nov. 3, 1982

83

7

Aug. 12, 1982

July 26, 1989

600

8

Dec. 4, 1987

May 30, 2007

1,694

9

Oct. 9, 2002

March 28, 2013

1,480

10

March 9, 2009

Aug. 18, 2020

148

11

March 23, 2020

???

???

12

May 19, 2022

The duration of the 12 bear markets since the World War II era . . .

and how long it took to recover from them.

Peak

Trough

Decline

Duration, in days

New record high

Days from trough to new record high

June 15, 1948

June 13, 1949

–20.6

%

363

Sept. 22, 1954

1,927

July 15, 1957

Oct. 22, 1957

–20.7

99

Sept. 24, 1958

337

Dec. 12, 1961

June 26, 1962

–28.0

196

Sept. 3, 1963

434

Feb. 9, 1966

Oct. 7, 1966

–22.2

240

May 4, 1967

209

Nov. 29, 1968

May 26, 1970

–36.1

543

March 6, 1972

650

Jan. 11, 1973

Oct. 3, 1974

–48.2

630

July 17, 1980

2,114

Nov. 28, 1980

Aug. 12, 1982

–27.1

622

Nov. 3, 1982

83

Aug. 25, 1987

Dec. 4, 1987

–33.5

101

July 26, 1989

600

March 24, 2000

Oct. 9, 2002

–49.1

929

May 30, 2007

1,694

Oct. 9, 2007

March 9, 2009

–56.8

517

March 28, 2013

1,480

Feb. 19, 2020

March 23, 2020

–33.9

33

Aug. 18, 2020

148

May 20, 2022

161

so far

Jan. 3, 2022

–21.8

so far

???

???

The duration of the 12 bear markets since the World War II era . . .

and how long it took to recover from them.

Peak

Trough

Decline

Duration, in days

New record high

Days from trough to new record high

June 15, 1948

June 13, 1949

–20.6

%

363

Sept. 22, 1954

1,927

July 15, 1957

Oct. 22, 1957

–20.7

99

Sept. 24, 1958

337

Dec. 12, 1961

June 26, 1962

–28.0

196

Sept. 3, 1963

434

Feb. 9, 1966

Oct. 7, 1966

–22.2

240

May 4, 1967

209

Nov. 29, 1968

May 26, 1970

–36.1

543

March 6, 1972

650

Jan. 11, 1973

Oct. 3, 1974

–48.2

630

July 17, 1980

2,114

Nov. 28, 1980

Aug. 12, 1982

–27.1

622

Nov. 3, 1982

83

Aug. 25, 1987

Dec. 4, 1987

–33.5

101

July 26, 1989

600

March 24, 2000

Oct. 9, 2002

–49.1

929

May 30, 2007

1,694

Oct. 9, 2007

March 9, 2009

–56.8

517

March 28, 2013

1,480

Feb. 19, 2020

March 23, 2020

–33.9

33

Aug. 18, 2020

148

161

so far

Jan. 3, 2022

May 20, 2022

–21.8

so far

???

???


Notes: The durations are measured in calendar days. For bear markets before 1948, the S&P 500 did not pass its record from the depression era before the next downturn began.

Sources: Yardeni Research; Refinitiv; New York Times analysis of S&P 500 data

By Karl Russell

For older workers nearing retirement — or for those who are already retired — waiting it out may not be an option.

“One of the huge shortcomings of the 401(k) is that even if you are fortunate enough to have been able to save enough, you still have a timing issue,” said Nancy Altman, a co-director of Social Security Works, a social welfare nonprofit focused on retirement benefits. “If the market is on a complete downturn, what are you supposed to do?”

People close to retirement age may be somewhat shielded from swings in the market, in part because of the popularity so-called target-date funds, which automatically move 401(k) money into bonds and other safer investments as their retirement age approaches. But 401(k) plans can still take a significant hit in market downturns. In 2008, for instance, as the S&P 500 dropped 37 percent, the average 401(k) account balance for those who were in their 50s fell 24 percent.

People with retirement accounts are keeping more of their assets in stocks now, as opposed to bonds or a mix of other investments. “There has been a growing complacency of people keeping most of their nest eggs in stocks,” said Monique Morrissey, who specializes in retirement at the left-leaning think tank Economic Policy Institute. “There has been a fundamental misunderstanding — returns do not always average out.”

The bigger issue, according to Ms. Morrissey, is that many people have gotten to used the stock market going up. That’s not a guarantee — especially in the near term.

“It’s not just the loss from January; it’s what happens going forward,” she said. “If you were counting on the amount that you have in your 401(k) to continually grow, well, then you may never get to what you had planned for.”

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