Bear Markets: History & Insights
Bear markets are a normal part of market lifecycles, and yet they always seem like a shock when one comes out of hibernation.
A bear market is defined as a 20% drop in stocks. It’s one of the worst statistics in investing. 20% is an arbitrary standard that emerged in the 70s and 80s. In the ~75 years after 1945 there have been 13 perfect 20% or greater bear markets. Improbably, there have also been five years in which there was an “almost-bear” market between 19.4% and 19.9% losses. They rarely get counted in statistics.
Bear markets are also not based on actual investor returns and losses. Those returns include dividends, which are usually about 2%-3% of a long-term return. If you like to include the Great Depression in your dataset, you’ll have to decide if the eight bear markets it contains were separate events or one giant bear market.
And no one counts inflation, but it must be counted! For instance, there was a 12-year period from 1973-1985 where no portfolio of stocks and bonds had any inflation adjusted gains. It’s a squishy definition when you pick it apart but we need something, right?
In April 2025, we welcomed our 27th official bear market in the USA since 1929, and the 18th since the end of WWII. The average drop has been a loss of 30% and they have lasted, on average, about a year in length. The good news, if you can call it that, is it typically takes much longer to reach 20% losses than to reach the bottom.
A 2020 analysis by Goldman Sachs looked at all U.S. market drops over 20% and found they fell into three broad categories based on their triggers and features: cyclical, event and structural. We updated and modified the Goldman report to include the current bear market--adding the almost-bears and the cause or name of the bear market so you can see some historical context. See the data below.
Event: These are one-off shocks, like Covid-19, that cause great distress but don't always lead to a domestic recession. Other examples include an oil price shock or armed conflict. Before Covid, the last example of this was Black Monday in 1987, Cold War events in the 60s, and others. These are not that common and mercifully short.
Cyclical: You are familiar with the classic economic business cycle. Growth increases, inflation rises, interest rates increase to tackle inflation, and recession follows along with falls in profits. These were extremely common before 1932 when the Federal Reserve was created. This is likely the type of bear market of 2022 and they are common and medium in length
Structural: These are triggered by economic structural imbalances and financial bubbles, such as the Great Depression and 2008 Great Recession. There's often a price shock, such as deflation, that follows. Both the 2002 technology crisis and 2007 financial crisis were structural. The Great Depression contains 8 of the 11 structural bear markets and might reasonably be considered one long bear market. These are less frequent but very harmful because we lose faith in the system itself. Fear at its deepest.
Knowledge helps create resilience in these difficult times. Cyclical bear markets are a common type that have been generally shallower than the more fearsome structural type. And you never know what you’re going to get. One thing you can be sure of is that they will come. It can be hard to stand your ground when the bears come out, but a solid investment strategy will hopefully make you feel more assured though the path may be rocky in the short-term.