What Journalists Should Know About Bear Markets
As inflation has skyrocketed over the past year due to the COVID-19 pandemic and its fallout, Americans are searching for relief anywhere they can get it. But if the stock market trends are any indication, Americans may need to gird their loins for quite a bit longer while the United States takes steps to shock the economy.
WHAT IS THE “BEAR MARKET”?
A “bear market” is a term used by Wall Street when a crucial stock index, like the
Dow Jones or S&P 500, drops more than 20 percent after sustaining highs for a long period of time. While these investment prices plummet, investors often watch from a distance until prices become attractive enough to invest and buy again, which ends the bear market. The name reportedly comes from bears hibernating–the stocks are going into hibernation.
WHAT CAUSES THIS DOWNWARD TREND?
Investors watch for signs that the economy is slowing, such as wage growth, inflation, and any other signs that point to a recession. Just before a recession, they sell their stock prices for a lower amount, causing the prices to plummet. Investors often also sell these stocks rapidly once they’ve begun without considering any changes in news surrounding the circumstances of the market, due to the natural pessimism of most corporate entities when it comes to profits.
HOW LONG WILL THIS LAST?
Bear markets last anywhere from 13 months to two years. At this time, most financial experts say it is important to diversify one’s investments as crucial portfolios hit record lows. However, some bear markets can last years–the Great Depression lasted nearly 10, and the Great Recession lasted at least two, if not longer. The indicators for this current bear market seem to suggest it will end somewhere around late October of this year.
WHAT DOES THIS MEAN FOR ME?
It’s hard to say, considering the complicated backdrop for the current bear market. Several factors such as the war in Ukraine, post-pandemic supplies and costs, and consumer spending/supply and demand have all had a profound effect on the market’s bearishness. Major retailers and companies which expected larger returns after the pandemic, such as Target, Apple, Microsoft, and Walmart, were met with weaker-than-expected profits. The most major takeaway for the average citizen is to prepare for a recession, the chances of which currently stand at around 30 percent.
HOW ARE WE AVOIDING A RECESSION?
The federal government is intervening by increasing the federal Interest rate in order to try and make borrowing money much more expensive for consumers. With less money left for consumers to spend, businesses will need to adjust their bottom lines to make profits. However, if the Federal Reserve raises interest rates too high too fast, that could also put the United States on track for a recession.
SO WHAT NOW?
If you’re an average citizen with no investments, the answer is to wait. The market tends to even out over time. If you’re an investor, sources suggest you take the time to diversify your assets. Patience is also key.. “I think it’s important for individuals not to make drastic moves at this point in their investment year, but take modest and more conservative action,” Wayne Wicker of MissionSquare Retirement said.
The stock market was the centerpiece of the federal government's focus for the greater part of the 20th century. When it crashed, the government would bail it out. This marks a demarcation of the federal government’s approach, going after inflation as a whole rather than putting money in the pockets of investors. The results of this bear market will certainly be unique.
