(tranquil ambient music) - When stocks
take a steep drop,
investors can come face to face
(bear growls) with a bear market.
This is one they encountered in March, 2020.
- It's been fierce and fast and ferocious,
the selling has been
and that's what really has caught everyone off guard.
- Bear markets tell you
that the stock market has fallen quite a bit.
And it's an indicator
that major indexes are significantly off their highs.
And it's a sign
that people are pretty fearful about the market right now.
(bear growls) - But just like
(upbeat ambient music) facing an actual bear,
some analysts say the best thing to do
when a bear market is approaching is to stay calm
and not make any sudden moves.
(paper shuffles) Here's how markets
make their way into bear territory.
And what has helped turn them around in the past.
Stocks enter a bear market (soft scribbling)
when they lose at least 20% of their value
from a recent high.
(tranquil ambient music) Let's look back
at the 2020 chart.
You can see when the market started to fall in February,
it entered a bear market here just under a month later.
The term is a shorthand way for Wall Street to mark
when stocks have taken a tumble,
a sign that investors are anxious about the future
and moving away from risky assets.
- There's a number
of things that can make investors more risk averse.
One, they can grow concerned about how stocks are valued
and say, is this stock really worth what I think it's worth,
or worth the premium that I'm putting on it?
Have valuations run up too far, too fast?
- [Narrator] This was a factor in a bear market in 2001
when a bursting market bubble drove down stock values.
- I believe I was asked about the markets today.
I'm sorry people are losing value in their portfolios.
- Another really important factor is the economy.
Often bear markets
have been affiliated with economic recessions.
So that's one thing that can really put investors on edge.
- [Narrator] Recessions have accompanied
nine of the last 17 bear markets.
And while one doesn't necessarily cause the other,
problems in the economy can be a major factor
in bringing stocks down.
High inflation contributed
to one of the longest bear markets in history in the 1970s.
Other things that can lead to bear markets
are big events that threaten corporate profits.
For example, that drop in stocks we looked at from 2020
was caused by the beginning of the coronavirus pandemic.
When investors were anxious
about the effect the virus might have on the economy.
- Often investors start to get concerned
about the levels of uncertainty out there,
and they decide, it's time for me to dump stocks.
That can drive prices down.
- [Narrator] So to review, a bear market occurs
when stocks have dropped by a certain amount,
but what turns them around?
(bell rings)
Stock prices depend on a variety of factors
that can change quickly or slowly.
- There's the fed, there's the economy,
there's US corporations, there's consumer behavior,
you have to take into account all of those things.
- [Narrator] For the bear market
(tranquil ambient music) to go back into hibernation,
stocks need to rebound by at least 20%
from their bottom point, flipping into a bull market.
The S&P 500 on average spends about 142 trading days
from the time it enters a bear market to the time it exits.
This chart shows five recent times the S&P 500
went into a bear market,
starting from when the market began to decline,
to when it made a full recovery.
After stocks started falling in 2000
when the.com bubble burst,
the index didn't hit bottom for over a year and a half,
and it took until 2007 to swing back to where it started.
- Part of the reason that did take so long to recover
was just the sheer magnitude of the boom in stock prices,
which made the bust just so, so dramatic.
And it took years for us to reclaim those highs.
- [Narrator] But the 2020 bear market
turned around in a record amount of time.
It hit bottom after just 23 trading days
and only took 126 days to swing to a new high.
One of the biggest reasons for the rebound
was the federal reserve and government stimulus.
Stimulus checks and lower interest rates
helped increase spending,
indicating to investors that companies could make it through
with government support.
Measures like this also helped bring stocks up
in other bear markets,
(bell chiming) like after the market crash
in the late 2000s,
though the recovery happened over a longer period of time.
- To break the adverse feedback loop,
it is essential that we continue to compliment
fiscal stimulus with strong government action
to stabilize financial institutions and financial markets.
- When the fed steps in to provide more stimulus,
historically that's helped the stock market.
- [Narrator] Other things that economists
and analysts say can make investors more confident
and bring up stock values
are corporate growth and strong employment numbers.
- When people feel good about spending money
or they're more optimistic about the future,
that can drive up stock prices
and that can help the economy.
- [Narrator] But changing investor sentiment
can take a long time,
and the recovery can be a difficult waiting game.
- For many individual investors,
holding tight is often the best path forward.
Historically selling stocks during bear markets
has been a terrible idea.
- [Narrator] Which is to say in the past,
bear markets have always turned around
and have sometimes resulted in high returns
for patient investors.
But bears are unpredictable. (bear growls)
And the next time stocks take a steep dip,
it could be years before investments pay off.