In This Article:
The tech-focused Nasdaq officially entered bear market territory on April 4, 2025, falling over 20% from its December peak. The plunge came as Wall Street grew increasingly anxious about the economic health amid President Donald Trump’s tariff announcement.
A recent survey by the American Association of Individual Investors showed that about 62% of respondents now expect market declines over the next six months — the most pessimistic reading in over a year. With stock prices sinking and both consumer and corporate confidence deteriorating, financial experts are foreseeing a global growth slowdown.
Why Shouldn’t You Fear a Bear Market?
A bear market is defined by a decline of at least 20% in investment prices from recent highs. The Nasdaq’s recent fall of 22% from its peak goes with this definition.
Since 1942, the average Bear Market period in the S&P 500 lasted 11.1 months with an average cumulative loss of -31.7%. Despite these downturns, market recoveries following bear markets often see strong gains. Historically, the average Bull Market period lasted 4.3 years with an average cumulative total return of 150.0%, per FT Portfolios.
Why Bear Markets Happen
A bear market typically reflects investor expectations that corporate earnings and sales will decline. In today’s case, the market is pricing in trade uncertainty well in advance of the actual event. The stock market fell amid the possibility of a recession about six months in advance, but not every bear market results in a recession.
Will a Recession Happen At All? Should You Panic If It Hits?
A recession is generally defined as six successive months of shrinking economic activity, measured by GDP. Since 1950, the United States has experienced 11 recessions, each averaging 11 months in duration, as quoted on a Money.com article. The most severe was the Great Recession from December 2007 to June 2009.
The U.S. economy expanded an annualized 2.4% in Q4 2024, slightly higher than 2.3% in the previous estimates. The scenario is not too bad. The labor market is still strong. Nonfarm payrolls in March increased 228,000, up from the revised 117,000 in February and better than the Dow Jones estimate of 140,000.
Investors should note that if the economy slows and inflation remains under control, we can see the return of a super-dovish Fed. As of now, two rate cuts are expected this year, the number of which can go up if the economy slows. This, in turn, may boost the stock market all over again.
Definitely, recessions are frightening as consumers and corporations adjust their behavior in anticipation of a disturbing downturn, but past occurrences tell us not to be perturbed already. Things normally improve once the economy gains momentum.