**What Is a Bear Market? As the S&P 500 Skids, How Bad Could It Get?**
**The S&P 500 is almost 20% below its record, a level that would place it in a bear market for the first time in more than two years**
**By Caitlin Ostroff, The Wall Street Journal, May 19, 2022**
**Stocks enter a bear market when widely followed indexes such as the S&P 500 or the Dow Jones Industrial Average sink 20% from their high points. ...The S&P 500 on May 19 neared levels that would place it in a bear market for the first time in more than two years...**
**The Dow returned to a bull market in March 2020 after an 11-trading day bear market. The S&P 500 took just 126 trading days to swing from a record to a bear market and back to a new high....Bear markets are rarely that brief. The underpinnings of a new bull market can’t be laid until people are so convinced that stocks can’t rise that the market finally begins to perk up. The bear market between 2007 and 2009 spanned 517 days (including non-trading days)...The prior bear market from 2000 to 2002 lasted 929 days....**
**Often a bear market precedes a recession. But a bear market just describes a decline in the value of stocks or other securities, while a recession is a general decline in a country’s production of goods and services, measured usually as two consecutive quarters of shrinking growth as determined by the National Bureau of Economic Research. ... From the Great Depression through the end of 2020, there have been 17 bear markets, nine of which were accompanied by a recession ....** [end quote]
The bear market in 2020 was reversed by the immense emergency actions of the Federal Reserve, which were unprecedented. The Fed says that it wants to return to “neutral,” which implies unwinding at least some of its bond purchases and raising the fed funds rate until it isn’t paying speculators to borrow money.
If the Fed actually executes this plan, the current bear market will have legs. If they don’t execute it, high inflation will have legs.
The economy isn’t in a recession at this time. Last quarter saw GDP decline, but that was due to inventory changes. Employment is still strong.