Bear Markets and Recessions Happen More Often Than You Think

It’s fun to spend money. But lose it? Losing money can be quite disastrous if you’re seeing a large chunk of hard-earned savings disappear.

That’s why the headline proclaiming the arrival of the bear market was so worrisome. Strictly speaking, the bear market is just Wall Street jargon that the stock market will fall by at least 20%. But this is not just a matter of numbers. The technical meaning of this term does not convey a complete human experience.

Indeed, the fact that we are in the bear market means that many people have already I lost a lot of money. Until the momentum changes, it will eventually happen, but quite a lot of wealth will flow out. Panic only makes things worse. For those who suffer huge losses for the first time, the bear market can be a time of dream crushing, suffering and sadness.

But for millions of people who couldn’t save enough money to lose it on the stock market, a far more serious problem could come. The recession may be ongoing.According to data provided by, the United States has been in recession for 14 percent since World War II. National Bureau of Economic ResearchA semi-official entity that declares when a recession begins and ends in the United States.

With the Federal Reserve Grow With Wednesday’s benchmark federal funds rate at 0.75 percentage points and expected to rise further to combat angry inflation, we could certainly head for another recession. The Federal Reserve is also comparing bonds and other securities accumulated on the $ 9 trillion balance sheet to strengthen the economy. In the policy shift, now, “Quantitative tightening“And it will contribute to the slowdown of the economy.

Like the bear market, recession has a dry, technical definition. According to the Bureau of Economic Research, a recession is “a significant decline in economic activity that has spread throughout the economy and has lasted for more than a few months.”

But basically, the recession is the equivalent for millions of people, many of whom are completely indifferent to stock and bond market fluctuations. Hard-working people lose their jobs, millions of families run out of money, and countless people will suffer a setback to their physical and mental health.

This is tough. Of course, if we could design a world that would eliminate the bear market and the misery of the recession, we would.

But don’t wait for it to happen.The best we can do right now is the bear market and its much more annoying recession. No The relatively calm of the last decade is a rare or truly unexpected event, even if it tricks us into thinking so.

Despite the best efforts of policy makers, history shows that both bear markets and recessions are about as common as the storms in New York. Learn to live with them, just as you do in bad weather.

Practical procedure

Inventory does not always go up. Risks are always present.

This may seem trivial insight, but it will not be fully understood until the market falls and will only be ignored or forgotten when the next boom occurs.

Try to take as much risk as you can tolerate. Long ago, I stopped investing in individual stocks and bonds, eliminating the risk of owning the wrong securities at the wrong time. Instead, I prefer low-cost, diversified index funds that allow us to hold a portion of the entire global equity and fixed income market. And as I got older and increased my bond holdings, I reduced my equity exposure. Bonds haven’t been successful lately, but government bonds and high-quality corporate bonds are still much more stable than the stock market.

Before investing, make sure you have enough money to survive an emergency and keep it in a safe place. If you have already succeeded in accumulating some cash, I have explained some reasonable places to keep it, especially during this period of severe inflation.

They include I bonds. Ministry of Finance And I’m paying 9.62% interest. (Interest rates are reset every six months.) Also, money market funds have begun to pay higher interest rates after approaching zero for several months. High yield bank accounts, short-term government bonds, and even some corporate bonds are also options.

Next, when it comes to investing, think really long-term. That means at least 10 years, preferably much longer. I don’t put money in the stock market that you think you need to use right away.

In the past, the stock market has always returned after a sharp fall. If we had put money into the entire S & P 500 in 10 years, we would have lost only 6% of the time. For over 20 years you would never have lost money.

Above all, be prepared for market fluctuations. At this point, it’s clear that it doesn’t always rise. In fact, history shows that a significant decline is a normal part of investment.

Why recent history is deceptive

The bull market is much more comfortable than the bear market and is the overwhelmingly dominant experience for those who started investing after March 9, 2009.

That day was the day the S & P 500 bottomed out after a 57% fall in the bear market. The terrible decline was caused by the financial crisis that began in 2007. What turned the market around was the Federal Reserve, which lowered interest rates to near zero, bought trillions of dollars in bonds, and launched a nearly 11-year-old bull market for equities. ..

The glorious period of the S & P 500 ended on February 19, 2020, near the beginning of the Covid-19 pandemic. There was a short bear market until the Federal Reserve intervened again, and on March 23, almost a month later, another bull market began. This lasted almost two years.

If that’s all you know, this year’s bear market may look like a rare anomaly, a random decline in the world where market profits are standard.

But I think it would be a serious misreading of history. The data provided by Howard Silverblatt, Senior Index Analyst at the S & P Dow Jones Index, provides a broader perspective.

Since 1929, the US stock market has been bearish for nearly 24% of the time. Note that in this prestigious accounting, the bear market starts on the first day of the decline and has a 20% downdraft. According to the S & P Index, the S & P 500 has been on the bear market since January 3, when the decline began.

You may be confused by this definition of the bear market, but the point is irrefutable. The decline in major markets has always been an integral part of investment, and if you intend to put your money into stocks, you need to be prepared for it.

Recessions occur frequently

We are in the bear market. We may be in recession now, but the Institute of Economic Research isn’t even trying to call for a recession in real time.

In the past, somewhere “between 4 and 21 months” after these events happened, they declared the beginning and end of a recession. As the bureau explains, “There is no fixed timing rule. Wait long enough so that the existence of the mountain or valley is not suspected and you can assign the exact date of the mountain or valley.”

Economists are good in many ways, but predicting a recession is not one of them. “It’s very difficult to predict a recession.” Ellen GasquetLead economist PGIM bondsSaid in an interview on Tuesday. “Even if one is correct, you may not be able to get the next one.”

However, there are accurate measurements for dates of past recessions dating back to 1854. data From the bureau’s website, with the help of statistician Salil Meta, made some calculations. I have found that the United States has a 29% chance of being in recession since 1854. From 1945 to 2020, it was in recession in just 14 percent of the time.

But consider this discovery, which was derived from the data and made by Mehta. On any day after the war, there was a 46% chance that the United States would be in recession or within two years.

What does it tell us about the possibility of a recession in the United States pretty quickly?The odds are everytime Moderately high and wise to prepare.

That said, my own erroneous assessment is that we please do not There is a recession. Rapid rises in interest rates, soaring energy prices, and plunging stock prices are often associated with recession.

However, even if none of these factors prove to be important, it is still important that recessions occur at an unpleasant frequency. The Federal Reserve has attempted to smooth the business cycle, but the term “great mitigation”, which was disseminated by former Federal Reserve Chairman Ben S. Bernanke in 2004, stands out due to its absence. increase.

The turmoil is a constant relapse in the market and economy. If economic and economic turmoil is common, it’s easy to see, but it will definitely be forgotten again. It can’t be helped.

Similarly, these tough times will not last. If you are already suffering, knowing it may not be very helpful.

But if the future is like the past, the economy is likely to grow in the long run, Financial markets are patient and bring great benefits to diverse investors. Understanding that a recession is an essential part of life, even if it is serious, may help avoid future pain.