Historical Anatomy of Bear Markets
Key Characteristics
- Depth & Duration: Declines range from 20% to over 80%, lasting weeks to decades[1][3]. The 1929 Crash saw an 89% drop over 3 years, while the 2020 COVID crash recovered in 4 months[2][4].
- Triggers: Common causes include economic shocks (e.g., 1973 oil crisis), financial crises (2008 subprime collapse), and exogenous events (COVID-19)[2][3].
- Recovery Leadership: Beaten-down sectors often lead rebounds. Post-2020, tech surged 82% in 9 months; post-2008, financials and cyclicals drove recovery[5][4].
Sector Performance & Recovery Patterns
Most Affected Sectors
- Cyclicals & Growth:
- Financials:
- Vulnerable to credit crises (2008: -51.9% S&P 500)[2].
Resilient Sectors
- Defensives:
Asset Class Correlations
| Asset | Typical Behavior During Bears | Correlation Drivers |
| Bonds | Safe-haven flows; prices rise as rates fall[6]. In inflationary bears (2022), real returns suffer[3]. | Inverse to stocks in deflationary crises; positive correlation in stagflation. |
| Gold | Rises as hedge against uncertainty (e.g., +15% during 2008 crisis). | Weakens if real rates rise sharply. |
| Forex | USD often strengthens in crises (flight to liquidity). | Tied to interest rate differentials and risk sentiment. |
| Equities | Cyclicals plummet first; defensives stabilize early[5]. | Recovery led by undervalued growth sectors post-crisis[5][4]. |
Inflation’s Role in Bear Markets
Inflation has been both a cause and amplifier of bear markets:
- 1973 Oil Crisis: OPEC embargo spiked inflation to 12%, triggering a 51.9% market drop[4][3].
- 2022 Fed Hikes: Rate increases to combat 9% inflation led to a 25% S&P 500 decline[2][3].
- Recovery Impact: High inflation prolongs equity recovery (1973 took 7 years nominally, 14% real returns)[3].
Major Bear Markets Since 1900
| Period | Cause | Decline | Recovery Time | Key Notes |
| 1929–1932 | Great Depression, speculation | -89% | 25+ years | Secular bear; GDP fell 30%[2][3]. |
| 1973–1974 | Oil embargo, stagflation | -51.9% | 7 years | Real returns near zero due to inflation[3]. |
| 2000–2002 | Dot-com bubble burst | -36.8% | 4 years | Tech sector collapse; S&P trough in 2002[2]. |
| 2007–2009 | Global financial crisis | -51.9% | 4 years | QE and stimulus drove recovery[2][3]. |
| 2020 | COVID-19 pandemic | -34% | 4 months | Fastest recovery ever[4]. |
| 2022 | Inflation, Fed hikes | -25% | 18 months | Tech led 2023 rebound (+41%)[5][4]. |
Recovery Dynamics
- Sequence: Defensives stabilize first (utilities, staples), followed by deep-value cyclicals (tech, discretionary)[5][4].
- Bonds: Perform well early in crises but lag if inflation persists (2022)[3][6].
- Gold: Peaks during uncertainty, then declines as equities rebound[4].
In summary, while bear markets are painful, they create opportunities in undervalued sectors. Inflationary environments complicate recoveries, but diversification across equities, bonds, and commodities remains critical[5][6].
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- https://www.investopedia.com/terms/b/bearmarket.asp
- https://www.investopedia.com/a-history-of-bear-markets-4582652
- https://www.advisorperspectives.com/dshort/updates/2025/04/04/bear-market-recoveries-q1-2025
- https://www.morningstar.com/economy/what-weve-learned-150-years-stock-market-crashes
- https://money.com/sectors-that-thrive-during-bear-markets/
- https://www.vanguard.co.uk/professional/vanguard-365/investment-knowledge/portfolio-construction/understanding-stock-bond-correlations
