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What is the Bear Market? Like the S&P 500 Skids, how much could it be?

The benchmark S&P 500 stock index is falling, flirting with what investors call bear market territory. If you’re tuning in or looking to reduce your retirement savings, here’s what you need to know about the grizzly bear decline.

Shares are very much in the market for highly-followed indices, such as the S&P 500 or the Dow Jones Industrial Average, when they sink 20% from their highs. The decision has nothing official. The designation is an abbreviated way to mark Wall Street when markets have fallen. It also gives investors a moment to reflect on the current action in the markets compared to previous declines.

On May 20, the S&P 500 traded at levels that would be marketed for the first time in more than two years. This means that the shares have basically fallen considerably, and that this decline has taken off. Most analysts base their calculations on index-closing levels rather than day-to-day levels.

This is the opposite of a bull market where an index or stock has risen by at least 20%.

Nasdaq Composite, driven by technology stocks, has been in the bear market since March. The Dow Jones Industrial Average, which is the heaviest in industrial and banking stocks, has not fallen as much as the S&P 500, so it is farther from bear territory.

How long do bear markets last?

The most recent bear market was in early 2020, when governments blocked economic activity to slow the emergence of Covid-19. The Dow returned to a bull market in March after an 11-day trading market. The S&P 500 only needed 126 trading days to move from a record to a bear market and return to a new high.

Despite the recent turmoil in the market this year, the S&P 500 was up about 75% from its 2020 low on May 18th.

Bear markets are rarely that short. The foundations of a new bull market cannot be laid until people can’t stock up until the market finally starts to rise. The bear market lasted 517 days between 2007 and 2009 (including non-business days), according to Yardeni Research Inc. The bear market lasted from 929 to 2002 for 929 days.

Stock markets can also sometimes flirt with bear market levels without reaching them. In 2011 and 2018, the S&P 500 fell 19% behind deep sales. Although some sectors, as well as other indices, fell by more than 20%, the S&P index did not technically hit bear market territory.

What is the difference between a bear market and a recession?

Often, the market is ahead of a recession. But a bear market only describes the decline in the value of stocks or other securities, while the downturn is a general decline in the production of goods and services in a country, usually measured by two consecutive quarters of growth, as determined by the National Economic Office. Research.

There have been bear markets that don’t match the recession. From the Great Depression to the end of 2020, there have been 17 bear markets, nine of which have been in recession, according to investment management firm Invesco. This confirms that he won the Nobel Prize for economist Paul Samuelson, who once wrote that Wall Street indexes had predicted nine of the last five recessions.

Why are stocks falling?

The action is caused by a mixture of factors. First and foremost, there is concern that inflation and the Fed’s actions to mitigate this could result in a sharp slowdown in the economy, corporate profits and therefore the value of companies in the stock market.

Strong consumer demand and supply chain disruptions, which have been exacerbated by recent COVID-19 blockades in some Chinese cities, have pushed up prices. Chip shortages have increased the cost of electronics. Russia’s war against Ukraine raised energy prices.

Rising prices erode consumers ’spending power as well as weight in the profitability of companies. Burs dropped another leg on May 18 after a gain in Target Corp..

and Walmart Inc..

it showed that rising costs were eroding profits.

To keep up with inflation, the Federal Reserve has begun to raise interest rates, which should lower demand. Higher interest rates increase short-term savings in cash, so investing money in promising long-term rewards, such as technology stocks, is less attractive. If the Fed raises rates too much, investors are also worried that growth could slow to a recession.

What is a correction?

Although the S&P 500 and the Dow Jones Industrial Average have not yet reached bear markets, they have achieved a correction.

The correction price is at least a 10% drop since the last peak. While it deletes the value of a stock, bond, currency, or stock, many investors see the corrections as a sign that they are buying at a lower price.

Markets are getting weaker lately: all stocks, bonds and cryptocurrencies are falling as investors struggle to manage the big changes that are affecting financial markets around the world. Caitlin McCabe of the WSJ examines some of the reasons behind the madness of the recent market. Photo: Spencer Platt / Getty Images

Do I have to worry about my 401 (s) and retirement savings?

For those close to retirement, this decline can be a problem. But in the long history of the stock market, bear markets have finally disappeared. Strong returns are achieved by investing when the markets are close to their lows. After the financial crisis of 2008, the shares entered the bull market for 11 years.

Where does the term ‘bear market’ come from?

During his 2020 Bear Market appearance, Wall Street Journal columnist Jason Zweig reported on the history of bulls and bears in the financial world.

He mentioned Anatoly Liberman, a linguist at the University of Minnesota, and said that the use of “bull” and “bear” to refer to optimistic and pessimistic finances, respectively, originated in Britain in the 18th century.

“Bull” caused the sounds of an enthusiastic buyer. The expression “bear” seems to come from an initial expression, “selling the skin of a bear before it catches a bear” —a proper metaphor for a short sale, where a trader sells borrowed shares with the intention of repurchasing them. Lower price.

The terms “bull market” and “bear market,” however, were not coined until the 1850s, says dictionary writer Barry Popik. Even then, they often referred to it as a one-day event. The 20% limit on bull and bear markets was only taken in the late 1950s and early 1960s. The use of the terms was consolidated in the 1980s and 1990s after high yields.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

Having money is very popular on Wall Street today. It’s a big change from the behavior of professional asset managers over the last decade. WSJ’s Dion Rabouin explains why money is no longer rubbish. Illustration: Adele Morgan

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What is the Bear Market? Like the S&P 500 Skids, how much could it be?

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