Current Market Outlook: Are we in a bear market?

Updated: 1/10/2019

Summary: The US stock market is currently experiencing a correction. We are not in a bear market yet. However, several indexes are already in a bear market.

As you probably know, December of 2018 was a rough month for the stock market. Chances are that your retirement accounts are down for the year and many people assume that we have entered a bear market. The graphic below shows the number of Google searches for “bear market” over time. Notice that it was at an all-time high in December. In fact, it was much higher than even in 2008.

Are we in a bear market?

In mid-December, several major stock market indexes in Asia and Europe were already in bear market territory. As for the United States, between September 17th and December 31st, the S&P 500 lost 19.7% of its value. A market correction occurs when a major market index (such as the S&P 500) drops by at least 10%. If the market drops by 20% or more, the index has entered a bear market. Therefore, we barely missed entering a bear market, at least for now. We are technically in a market correction and it could still turn into a bear market. Only time will tell.

It’s important to remember that the above definitions are index-specific. So while the S&P 500 is not in a bear market at this time, some other major US indexes are. For example, the Nasdaq and the Russell 2000 indexes both dropped by more than 20% in late 2018. So it could be said that we are in a partial bear market.

What if it turns into a bear market?

Stocks go through many corrections as part of the regular market cycle but corrections are typically short-lived. In fact, the market recovers from most corrections within 3 months. Bear markets, on the other hand, can take longer to recover from: typically one to five years. This doesn’t include the time during which the market declines, which lasts an average of one to two years. If you are years away from retirement, you have time to ride through these market lows. It might even be an opportunity to look for deals in the market. On the other hand, if you are about to retire and have a large percentage of your portfolio in the market, the recent loses might make you nervous. However, you might be reassured to know that most people who retired in 2000 and 2008 are doing okay, provided that they saved enough and are following the 4% rule. Of course, there are no guarantees, but so far the market cycle seems to be repeating what it has been doing for many decades.

Disclosure: This article is provided for informational purposes only and is not intended to form a primary basis for any investment decision that you may make. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Always consult with an investment advisor, tax advisor, and/or lawyer prior to making any financial planning, investment, tax, or estate decisions.

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