“Most people tend to look at the economy based on their own situation if they’re doing well and are employed, they’re more interested in buying things and investing in stocks,” Johnson says. But if consumer spending shifts, that indicates a lack of confidence that the economic good times will last, either for the economy as a whole or their personal situation. When consumers are continuing to spend money briskly, it’s usually an indicator that interest in buying stocks will also remain brisk. Some of the major ones include:Ĭonsumer spending falls. There are a number of reasons why demand for stocks will decrease. “When lots of people want to buy stocks, the prices go up, and when people lose interest in buying stocks, the prices go down.” “Stock prices are always connected to supply and demand,” Johnson says. Put simply, a decline in demand for stocks causes prices to fall. But the average bull market, or period of growth, lasted 6.6 years with a cumulative total growth of 334 percent. Consider this: According to the First Trust analysis, the average bear market period lasted 1.3 years with an average cumulative loss of 38 percent. And the market has gone on to set new highs. In other words, every downturn has ended in an upturn. By March 12, all three major stock-market indexes had ended the day in bear market territory, with cumulative drops of over 20 percent.Įven though periods of downturn can be scary, they’ve historically just been interruptions in the market’s overall growth. The S&P 500 and Nasdaq also dipped by 4.89 percent and 4.7 percent, respectively-about 19 percent below their recent all-time highs. It was a drop of more than 20 percent from February's record high. On March 11, 2020, triggered by investor anxiety over the coronavirus outbreak, the Dow plunged 5.86 percent (or 1,464 points), sending the index into bear market territory for the first time since 2009. The severity of those bear markets ranged from an 83.4 percent drop to a 21.8 percent drop in the S&P 500-stock index. market experienced eight bear markets, ranging from six months long to 2.8 years long, according to an analysis by First Trust Advisors. If the downturn develops into a bear market, though, the major stock indices go lower over time, hitting new lows and experiencing highs that are lower than before. “Downturns can happen quickly and sometimes erratically, and sometimes the market can bounce back quickly,” says Skip Johnson, founding partner at Great Waters Financial in Minneapolis. But a market downturn can be less extreme. That happens when prices fall at least 20 percent below their 52-week high. In some cases, it’s a transition from a bull market to a bear market, as was the case in March of 2020. A market downturn is when the stock market turns from rising prices to dropping prices.
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