Stocks have struggled for direction since falling into a bear market earlier this month amid looming recession fears, but history shows that the market’s rapid pace of decline this year could actually be a positive sign—with stocks set to rebound if the broader economy avoids a downturn .
The S&P 500 officially fell into a bear market on June 13, closing down more than 20% from its record high in January; and although the benchmark index bounced back above that threshold last week, stocks have been falling and pushing markets lower once again.
“No two bear markets are exactly alike,” according to Bespoke Investment Group; that said, over half of bear markets since World War II have preceded a recession but those that did not lead to an economic downturn tended to last for a shorter time, on average.
“The good news is that the bull market took just 161 calendar days to go from its peak to a 20% decline threshold—compared to an average of 245 days in past bear markets,” says Sam Stovall, chief investment strategist for CFRA Research.
Based on historical S&P 500 returns since 1945, a “quick” descent into a bear market often tends to signal more “shallow” declines ahead rather than “mega-meltdowns”— declines of 40% or more, he adds.
There have been five past bear markets where the S&P 500 reached a 20% decline threshold in below-average time (1961, 1966, 1987, 1990 and 2020), and in all instances, the average market decline ended up being less than 27% , Stovall points out.
Overall, in all 14 bear markets since 1945, the S&P 500 fell by an average of 32% and took an average of 12 months to find a bottom, while fully recouping those losses within an average of 23 months, according to CFRA data.