Financial markets constantly alternate between bullish and bearish trends that may last from a couple of days all the way to weeks or even months. However, such trends often do not have a very significant impact on the integrity of the financial market.
On the other hand, long-winded bullish and bearish markets can either cause a crash or overvalue the market to its breaking point - causing a crash.
Markets live by the business cycle, with boom and bust cycles alternating, creating and eradicating wealth.
Bear markets, in particular, cause traders and investors to panic and question the very integrity of the global economy. However, not all bear markets are equal as some last a few weeks, while others can reach over a year. One thing is for sure though, the average bear market is considerably shorter than a bull market.
There are a few key reasons why this happens and it involves much more than just the bull and bear markets in a particular asset class.
If you wish to know more about how long an average bear market lasts in the stock, crypto, and other asset markets - this investfox guide is for you.
What Are Bear Markets And How Do They Work?
Before delving deeper into the average length of bear markets, it is important to clearly define what a bear market is and how to characterize one.
By definition, a bear market in asset classes that have fluctuating prices, such as stocks and crypto, is a 20% decline from the recent highs. Therefore, the difference between the peak and the trough must be at least 20% for a bear market to be classified.
Here are a few important facts to know about bear markets:
The definition of a bear market varies between asset classes. For example a stock bear market best suites the above definition, while a bond bear market starts when interest rates start to rise after a period of declining rates
Bear markets are not always indicative of a recession, as bear markets can take place in particular sectors of the economy and not have as large of an impact on the broader economy. However, a long economy-wide bear market can increase the probability of a recession occurring
Bear markets represent opportunities for investors once the market starts to shift from a bearish to a bullish period
The average bear market lasts shorter than a bull market, as an extensive bear market can translate into a recession, forcing governments to take drastic measures to offset this
On average, a bear market on the equity markets occurs once every 3.5 years
How Long Does An Average Bear Market Last?
The length of a bear market depends on a number of factors, such as the severity of the fall from the peak to the trough, the asset class, and broader market sentiment.
Below, we will briefly look at how bear markets work when it comes to different asset classes, from stocks to FX and commodities.
Stock Bear Market
Stock market bull and bear markets can sometimes be detached from the overall health of the economy, as bear markets can sometimes only affect specific sectors of the economy.
The U.S. stock market has benefitted from near-zero interest rates and rapid economic growth for over a decade since the conclusion of the Great Financial Crisis of 2008.
The S&P 500 has grown by over 50% over the past five years.
A typical stock and ETF bear market lasts between a couple of months to a year. Anything longer than this can be classified as a recession. By definition, a recession occurs when a country has negative economic growth for at least two consecutive quarters.
A bear run in the S&P 500 that lasts more than 6 months signifies underlying economic issues in the United States, which can have ripple effects all over the world.
However, it is important to consider that the stock market is usually overvalued, which means that an even longer bear market may be required for the decline in value to translate into an actual recession.
Crypto Bear Market
The crypto market is heavily dependent on the prices of Bitcoin and Ethereum. Therefore, any major factor that causes the market to lose faith in these coins, will have a ripple effect on the broader crypto market.
If we measure the crypto bear markets in relation to the price of Bitcoin, the average crypto bear market may be slightly longer than a stock bear market, in absolute terms.
However, it is important to note that crypto is considerably more volatile than stocks and a large bear market may include smaller-scale bull runs in-between the peak and the trough.
From the all-time high of Bitcoin, reached in November 2021, the major crypto bear market lasted until the end of December 2022, after which the price started to rebound and a smaller-scale bull run started, which saw the price reach over $30,000 in July 2023, which is still over 50% lower than the all-time high for BTC.
On average, a major crypto bear market lasts around a year, however, the crypto market shifts and changes very frequently, and minor trends alternate more often than on the stock market.
Bond Bear Market
Highly different from stocks and crypto, fixed-income securities, such as bonds, start a bull run when high-interest rates start to gradually be lowered. The global bond market has been in a major bull run for roughly 40 years, as interest rates have been gradually decreasing in most countries around the world.
However, runaway inflation in 2021 and 2022 has forced central banks to start raising interest rates pretty aggressively, starting a bond bear market.
It must also be noted that the degree of influence of interest rate changes on bond rates can vary between treasury and corporate bonds.
For bonds, the discrepancy between the length of bull and bear markets can be even more stark, as central banks are eager to lower interest rates as soon as they can to stimulate the economy and avoid a recession. Therefore, the bull and bear runs on the bond market are heavily tied to the microeconomics and politics of some of the most financially influential countries in the world, such as the United States, the UK, China, etc.
FX Bear Market
When it comes to the forex market, the definition of a bull and bear market can vary greatly, depending on the currency pair. However, considering the importance of the U.S. dollar as the global reserve currency, the strength of the dollar has a lot of influence over the rest of the market.
To illustrate this, we can look at the dollar index (DXY) to see the dynamic of the U.S. dollar as compared to other major currencies.
As we can see, the dollar index started a bear run in March 2020, which lasted until June 2021, which is longer than a year.
However, not all bear markets are of the same length and it is more reasonable to measure the length of currency bear and bull markets in conjunction with the interest rate dynamics and government bond yields of the countries involved. An average currency bear market can last between 6 months to a few years.
An extensive bear market in a specific currency can lead to major economy-wide recessions which will affect all other asset classes.
Commodity Bear Market
Commodity prices are tightly tied to the rate of inflation in a country. For example, the price of gold has been on a steady path to growth for decades, gaining a whopping 566% since the turn of the century, while the performance over the past 30 days has been -1.95%.
As with currencies, the performance of gold and other commodities is highly dependent on inflation and interest rates, as well as physical factors, such as production rates and supply/demand shocks.
The average length of a bear market in the commodities market can be comparable to that of the currency market, however, the effects are inversely correlated - when inflation causes a bear market in Forex, commodities such as gold and oil tend to enter a bull market, and vice versa.
What To Do In A Bear Market
We have briefly outlined the average lengths of a bear market across various asset classes. But what should investors do in a bear market and what choices do they have at all?
Bear markets can be ripe with opportunity, as prices fall across the board, investors can buy up lucrative investments at affordable prices.
Generally, there are three distinct actions investors can take when encountering a fully-fledged bear market.
Open Short Positions
The first, and the riskiest course of action is to pick a handful of instruments that you deem to be hit the hardest and open short positions before the bulk of the sell-off takes hold.
This is a very risky move, as it is impossible to tell for certain just how much a sell-off will affect the price of an instrument. Short-selling involves the use of leverage, which means you have to borrow shares from your broker.
Timing a short-sell can be challenging, but when done right can give you substantial returns.
Invest In Inverse ETFs
Inverse ETFs remove the hassle of individually picking the instruments to short-sell and offer a diversified leveraged fund that benefits from the decline in the price of an underlying index.
For example, if you are bearish on the S&P 500, you can invest in one of the inverse ETFs of the index to generate gains as the price of the S&P 500 falls.
Most inverse ETFs offer 2X or 3X leverage, which can amplify the gains, as well as losses.
A less risky alternative to short-selling, inverse ETFs are nonetheless highly volatile due to their leveraged nature.
Wait It Out
Sometimes, the hardest decision to make on the market is to do nothing at all. Waiting out the brunt of the sell-off can be a wise decision for most investors, who can then buy the instruments of their choice at considerably lower prices.
While it is difficult to predict where the trough of the bear market will be, it is nonetheless a great opportunity to closely monitor the market and buy at acceptable levels.
Key Takeaways From Bear Market Average Length Per Asset Class
Bear markets are periods when the difference in market returns between the peak and the trough amounts to at least 20%
Bear markets can differ greatly from each other, depending on the asset class in question
Stock and crypto bear markets roughly average close to a year in duration, while bond markets tend to have shorter bear markets, as central banks try to lower interest rates as soon as they can, to help stimulate borrowing in the economy
Bear markets on the stock and crypto markets are more performance-based, while bond, currency, and commodity markets are influenced by interest and inflation rates
Investors can invest in inverse ETFs or open short positions to take advantage of the falling prices, or wait out the bulk of the fall and buy at cheaper prices
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A bear market occurs when the difference between the peak and the trough of a price chart exceeds 20%. Bear markets vary greatly in terms of scale and can sometimes cause major recessions when prolonged unobstructed.
Are bear markets longer than bull markets?
No. typically, bull markets are longer than bear markets, as prolonged bear markets can cause an economy-wide recession, which is something governments desperately want to avoid and often stimulate the economy and inadvertently cause a bullish push on the market.
How often does a bear market happen?
On average, a bear market occurs once every 3.5 years. However, this can vary greatly between asset classes. However, bear markets typically don’t last very long, largely due to outside interventions in the market.
