![]() ![]() You won’t have income to cover your losses. If you’re retired, don’t take withdrawals from your stock funds in a bear market unless you have no other choice. That’s a good thing: You want to buy low now and sell high later. In the meantime, if you invest regularly, you hope to be buying stock at progressively lower prices. The average bear recovers in three and a half years. For example, if you’re 50 years old and plan to retire in 15 years, your best bet may be to keep socking away money in your 401(k) or IRA in the same proportions as you have been. And big moves in dubious stocks, such as video game retailer GameStop, have also been fairly common.īear markets are almost always discovered in hindsight, and your reaction to them should depend on your current financial position as well as your goals. The Russian invasion of Ukraine not only made the world a less stable place but also drove up the price of oil. Currently, for example, both long-term and short-term interest rates are rising, albeit from very low levels. It’s entirely possible to have all three factors in play at once. Eventually, investors wised up and realized that those companies were never going to make money, and that started the big bear market of 2000. In 2000, for example, investors made huge bets on online companies such as the now-defunct. Every so often, however, stock investors get too optimistic, making big bets on stocks that don’t deserve all that money. Sobriety. The stock market is a place for optimists: You buy stocks because you think corporate profits will increase, the economy will be healthy and prices will rise.The short, sharp bear market in 2020 was caused almost entirely by the onset of the coronavirus pandemic. The bear market that started in January 1973 lasted 69 months and clawed the S&P 500 for a 48.2 percent loss. The price hike affected not only consumers, who had to wait in long lines for gasoline, but also the many companies that relied on oil to make or ship their goods. In October 1973, for example, OPEC (the Organization of Petroleum Exporting Countries) declared an embargo on oil exports, causing the price of oil to triple in a few months. External factors. The world is an uncertain place, and sometimes events come out of the blue that cause a stock market sell off.In addition, higher rates mean that businesses have to pay more for loans, which reduces corporate earnings. If investors can get a relatively good rate (after inflation) on a bond, they will tend to move money out of stocks and into interest-bearing investments, such as government bonds. Why is that bad for stocks? Bonds are loans to corporations, municipalities and the U.S. After all, if you earn 3 percent on an investment and inflation averages 4 percent, you’ve lost a percentage point. If they think inflation will rise, lenders start raising their interest rates. They also want a rate of return that’s higher than inflation. ![]() ![]() Rising interest rates. Lenders, whether they are giving you a home mortgage or financing a mega-million-dollar bond offering, like to get their money back.Here are the general culprits that tend to unleash the bear. There is no one cause for bear markets, which is why trying to predict them tends to be futile. ![]()
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