Longest Bear Market in History Plus 7 Other Bear Market Facts

For investors, few terms strike as much fear as "bear market." 

Like being face-to-face with a predator in the wilderness, a bear market represents a period of decline where prices plummet and pessimism prevails. By the time you're done reading this article, you'll know which is the longest bear market in U.S. history and a few other facts that might help you learn how to approach these types of markets. 

We've covered everything from understanding a bear market rally and even learning to select your stocks. In the end, you'll have the knowledge you need to safeguard your investments from taking a beating.

Key Takeaway 

The longest bear market in U.S. history was the Great Depression bear market, which lasted from 1929 to 1932. The notorious downturn saw the stock market lose 86% of its value as the Dow Jones Industrial Average plunged from 381.17 to 41.22 points. 

The Great Depression wasn't just the longest bear market in U.S. history and one of the most devastating economic periods worldwide.

What is the Longest Bear Market in History?

What is the longest bear market in U.S. history? 

A bear market is defined as a period when stock prices fall by 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

And there was no more pessimism than during the Great Depression bear market. As stated earlier, it lasted from 1929 to 1932, coming at the tail end of the Roaring Twenties, a time of prosperity and growth where the stock market swelled to never-before-seen heights until the bubble burst on October 29, 1929, a day known as Black Tuesday.

The results were devastating. Wealth evaporated rapidly as businesses succumbed, and countless people lost their savings and went bankrupt. Unemployment soared, and despair spread.

Multiple factors contributed to its length and severity. A speculative bubble in the 1920s, lax regulatory policies, bank failures and a breakdown in international trade played a part.

Investors who had leveraged their investments with borrowed money were hit the hardest, losing everything when they couldn't meet the margin calls. This resulted in a torrent of forced selling and accelerated the market's downward spiral.

In less than four years, the GDP fell by more than 25%, marking the deepest economic contraction in modern times. The economy didn't fully recover until over a decade after the outbreak of World War II.

Bear Markets in U.S. History 

The stock market's history is a shifting tale of bulls and bears. Besides the Great Depression, here are some of the other deep and long-lasting break markets:

7 Bear Market Facts 

A bear market is characterized by a prolonged period of falling asset prices, typically 20% or more from recent highs. It's not an overnight occurrence but rather a slow, steady decline that instills fear and skepticism among investors. 

A weak or stagnant economy, high unemployment rates and falling investor confidence often accompany bear markets. Here are some other facts you might find intriguing:

Bear Market with the Longest-Lasting Impact 

The bear market with the most enduring imprint on the financial landscape was the Great Depression. The period, which spanned from 1929 to 1932, altered the global economy and society, triggering changes we still see reflected in modern financial policies.

In the late 1920s, the United States economy was booming, and the stock market reached unprecedented heights. Investors were chasing big returns, and "buying on margin" became common. This allowed them to purchase stocks with borrowed funds. But when reality struck and the stock market crashed in October 1929, those who had bought stocks on margin were hit hardest. Instead of making huge profits, they were left with massive debts. Mass bankruptcies ensued as lenders called in their loans, triggering a sharp increase in unemployment and widespread poverty.

The legacy of the Great Depression prompted major changes in financial regulations. The Securities and Exchange Commission (SEC) was established in 1934 to protect investors, maintain fair markets and ease capital formation. Policies were implemented to curb the overly speculative practices that led to the 1929 crash, including limits on buying stocks on margin and more rigorous scrutiny of banking practices. The government also established the Federal Deposit Insurance Corporation (FDIC) to protect depositors from bank failures, a major issue during the Depression era.

Fact 1: Bear Markets Don't Last Forever

While it's true that bear markets can be severe, as evidenced by the Great Depression, they ultimately don't last forever. In fact, according to historical data from the S&P 500, bear markets have lasted an average of just over a year. This is in contrast to bull markets, which typically extend for multiple years. So, while the downtrend can be painful, it's also temporary.

Fact 2: Bear Markets Often Lead to Bull Markets

Although it's hard to believe when you're in the thick of a bear market, these periods often set the stage for the next bull market. This is because the low stock prices during a bear market create buying opportunities for investors. Those who dare to invest when prices are low can cash in when the market eventually rebounds. Some of the greatest gains in stock market history have happened shortly after major downturns.

Fact 3: They're Not Always Predictable

Despite many experts attempting to predict bear markets, they often come as a surprise. Many factors can trigger a bear market, making it difficult to forecast them accurately.

Fact 4: Recessions and Bear Markets Often Go Hand in Hand

There's often a relationship between bear markets and recessions. As the economy struggles, corporate earnings usually drop, leading to falling stock prices. For instance, the 2008 financial crisis was both a recession and a bear market.

Fact 5: Bear Markets Can Occur Without Recessions

While bear markets and economic recessions often coincide, one doesn't necessarily cause the other. A bear market can happen in response to an economic slowdown or financial instability without a full-blown recession kicking off. For example, the dot-com bubble bursting in the early 2000s led to a bear market, although a recession didn't immediately follow. So, while bear markets often signal economic trouble ahead, they don't always mean doom and gloom for the broader economy.

Fact 6: Global Events Can Trigger Bear Markets

Global events like wars or pandemics can give rise to bear markets. For instance, the Oil Price Shock of 1973 led to a severe global recession and bear market. Same with the pandemic-induced economic shutdown in March 2020. However, due to the monetary and fiscal stimulus, they were followed by an equally rapid recovery.

Fact 7: Bear Markets Vary in Severity

Just as no two bull markets are identical, bear markets vary in severity and length. While some bear markets may last a few months with a sharp but brief price drop, others can persist for years with a steady decline. The Great Depression of the 1930s remains the most severe bear market, with the stock market losing nearly 90% of its value.

Strategies for Navigating the Worst Bear Markets 

Surviving a bear market requires more than just knowing its patterns or causes. It calls for a cool head, strategic planning and, most importantly, patience. Here are some strategies you might want to consider:

Diversification

To protect your portfolio during a bear market, diversify your holdings. This means spreading your investments across different types of assets such as bonds, stocks, real estate and precious metals. This way, you can help buffer your portfolio against significant losses. Even if one sector takes a hit, others might stay stable or prosper.

Investing in Value Stocks

Value stocks, or shares in companies undervalued by the market, can be a smart choice during a bear market. These stocks often have lower price-to-earnings ratios and may pay dividends, offering income during lean times. And once the market rebounds, they have the potential for capital gains.

Cash Reserves

Having cash reserves can be a lifeline during a bear market. It allows you to take advantage of lower prices without selling other investments at a loss. It also provides security, allowing you to meet your day-to-day expenses and weather the storm without liquidating your long-term investments.

Deferred Consumption

One of the smartest ways to weather a bear market is to limit your spending and increase your savings. Deferred consumption can give you extra cash to invest when prices are low, allowing you to buy more shares for less money. Plus, it helps create a financial cushion if things get worse before they get better.

Fixed-Income Securities

Invest in fixed-income securities like bonds or certificates of deposit (CDs). These can provide a steady income stream regardless of the market conditions and offer some stability during turbulent times. While they're typically less volatile than stocks, they also usually offer lower returns.

Purchasing Put Options

Purchasing put options can be another strategy to navigate a bear market. You sell your stocks at a predetermined price within a specific timeframe, providing a way to avoid big losses if the market keeps plummeting.

Buying Bear Market Funds

Bear market funds, or inverse ETFs, increase in value when the market falls. They’re designed to perform in direct opposition to an index, meaning you can hedge against losses in a down market. However, you must handle them cautiously, as they can result in losses.

Embracing the Bear: A Final Word on Market Downturns

As investors, there's always a chance of encountering raging bulls and looming bears. Understanding the nature and triggers of bear markets, and their varied severity and length, can help. But knowledge by itself isn't enough.

Riding out a bear market calls for foresight, patience and resilience. Diversifying your portfolio is one of the best ways to give yourself a safety net during even the harshest economic climates.

FAQs

Welcome to the frequently asked questions section. This is where we answer some of your most pressing inquiries about the longest bear markets in U.S. history.

How long do bear markets last historically? 

Traditionally, bear markets have varied in duration. On average, they tend to last around 10 to 20 months. But of course, the financial landscape is ever-changing, and these figures are historical averages, not hard-and-fast rules.

How long did the 1973 bear market last? 

The 1973 bear market, also known as the Oil Crisis bear market, lasted approximately 21 months, from January 1973 to October 1974. It was marked by an energy crisis due to an oil embargo by OPEC, impacting stock prices. It resulted in the S&P 500 dropping about 48% from its peak, making it one of the most severe bear markets in U.S. history.

What was the worst bear market in history? 

The worst bear market in history was the Great Depression, which lasted from 1929 to 1932. Over three years, the Dow Jones lost approximately 86% of its value. The crash began in October 1929 with a dramatic drop in stock prices that was soon followed by an overall economic collapse, leading to widespread job loss and poverty.