What Should You Expect During A Bear Market For Stocks?
By James Picerno | The Milwaukee Company
Bear markets for stocks vary, sometimes dramatically, in depth and duration.
Predicting bear markets is challenging because these events can be influenced by economic and trading factors that are specific to points in time.
The average loss during bear markets is roughly 35%.
The US stock market has been flirting with a bear market recently, but has yet to cross the Rubicon. The conventional yardstick for defining such events: a 20% decline from a recent high. By that measure, the selling through Apr. 8 left the S&P 500 Index with an 18.9% drawdown from the Feb. 19 peak, which marked an all-time high, based on closing prices.
The market has since partially rebounded since Apr. 8 and has pared the current drawdown to a milder 13.9% decline from the peak. As we write today (Apr. 23), the market is rallying again and so it’s possible that the red ink may continue to fade.
Despite the latest bounce, the market remains deep in correction territory and no one knows if we’ve seen the bottom and a recovery has started, or if deeper losses await. Either way, now’s a good time to review the history of bear markets to manage expectations for what may be lurking in the weeks or months ahead. The source of the selling this time may be unique, but periodic bouts of stomach-churning loss is par for the course with the stock market and so it’s useful to keep history in mind to manage behavioral risk. As rough as bear markets are, it’s even worse if you panic and sell at or near the bottom. Studying the track record of these events can help prepare you for the next time.
Let’s start with frequency: Bear markets are rare. Since 1950, mercifully there have been only 11. Note, however, that the arbitrary definition of a 20% loss from the peak masks several additional declines that didn’t quite reach that trigger point, but came close. The seven-month slide in 1990 cut the S&P 500 by 19.9% — not quite a bear market proper, but that was a distinction surely lost on the average investor.
The bigger point is that bear markets, however you define them, come in a wide variety. The deepest was the 2007-2009 monster that dispensed a hefty 57% loss. The longest on record was the 1973-1974 beast that lasted more than seven years in terms of recovering the previous peak. The shortest: the brief pandemic-induced collapse in 2020 that was a brief six months.
For a more intuitive review, consider the chart below, which plots all the bear markets since 1950 in a single graph. The declines show the drawdown through the respective troughs. The red line is the current drawdown through Apr. 22, a relatively deep and quick affair vs. history.
Reviewing history, although useful, has its limits. Every bear market is unique in that the relevant factors reflect the specific economic and financial conditions at a single point in time. Predicting these downturns, as a result, is tricky, as is trying to anticipate how they’ll unfold once they’re in progress.
It is also important to consider the growing influence of high-frequency trading, algorithmic trading and the speed at which markets now absorb information. Unlike in past decades, markets appear to reprice assets within milliseconds based on headlines or policy shifts, accelerating both optimism and panic.
Consider the grueling bear market of 1973-74, for example, which was a byproduct of the oil crisis, inflation, the Vietnam War, the political crisis a la Watergate, and President Nixon’s unsuccessful efforts to manage the economy with wage and price controls. It was, in short, a unique cocktail of factors.
In 2025, a critical factor weighing on the market is tariff policy. It’s too early to make definitive assumptions about how raising import fees will affect the economy, in part because the policy is evolving and the White House says it’s engaged in negotiations with several countries. President Trump has also paused some tariffs for 90 days, albeit with the exception of China.
What is clear is that bear markets are painful. The average loss is roughly 35%. As a general rule, investors in the stock market should prepare for such declines and assume that these haircuts are inevitable and a normal part of the investing process.
History also teaches another crucial lesson: Bear markets end, eventually. Timing, as always, is uncertain. But for investors with the discipline to hold tight, the rewards can be substantial—especially for contrarians who turn the tables on the bears and make lemonade out of lemons.
In the deepest bear market since 1950, which unfolded during 2007-2009, adding to depleted equity allocations earned a hefty premium. Buying at or near the bottom, and sitting tight for three years, generated a 50% increase once the previous peak was rescaled.
Identifying bottoms in real time is virtually impossible, of course. But if you’re focusing on expected returns, which soar in bear markets, it’s hard to miss the opportunity that stretches across months of selling.
Why should the market offer such outsized returns? Because there are so few investors able and willing to suffer the short-term pain that’s part of the price tag for longer-term gain.
Investing, after all, is a zero-sum game in terms of alpha (return that deviates from the benchmark, in this case the S&P 500). For every investor earning positive alpha, it’s financed by someone with negative alpha. During bear markets, the supply of negative alpha tends to surge. For a relative few who can look far enough into the future, that’s an invitation too good to pass over.