A NASDAQ bear market is officially crowned when the NASDAQ dips by 20% or more. Anything over 10% but under 20% is viewed as a market correction. Using these definitions, the NASDAQ entered a bear market in May 2022.
When Will the NASDAQ Bear Market End? If we used history as a guide, the NASDAQ bear market shouldn’t last more than six months with one major caveat: the economy doesn’t enter a recession. But that’s a big IF.
How long will the current NASDAQ bear market last? The odds favor a recession at this point, suggesting the bear market could last longer, perhaps as much as 17 months when examining historical precedents.
Factors That Influence Bear Markets
Numerous factors can contribute to a bear market. The current NASDAQ bear market has numerous contributing factors:
- High gas prices that make it more expensive to move products.
- Historic inflation that forces consumers to cut spending and think more carefully about how they budget their money.
- Relatively flat incomes that have not kept up with inflation.
- Supply chain disruptions that contribute to inefficiencies, lost trust, and higher prices.
- Higher interest rates that are expected to increase even more throughout the year.
It’s worth noting that the market experienced a major bump before stocks plunged. While the NASDAQ looks unhealthy compared to where it was six months ago, it still looks like a great success compared to three years ago.
Still, there is no denying that the market has lost more than 20% of its value, and that trend looks like it’s here to stay for a while.
Famed investor, Stanley Druckenmiller – who has rarely had a down year while averaging annual returns of around 30% – spoke recently about his expectations that the bear market would last until 2023. He also commented that some rip-roaring bear market rallies might take place along the way so traders looking to go short should be wary and careful.
How Long Have Previous NASDAQ Bear Markets Lasted?
On average, bear markets last 289 days (9.6 months). Obviously, some bear markets last much longer and some don’t last nearly that long.
Clearly, most people hope that the market recovers as soon as possible. However, a shorter bear market doesn’t necessarily mean that it hurts investors less than a longer one.
In 2020, the S&P 500 bear market ended in just over a month. It entered a bear market on February 19 and recovered by March 23. During that month, the index lost 34% of its value. The 2020 bear market is the shortest on record, but it did quite a bit of short-term damage.
On the opposite end of the spectrum, the “2008 bear market” lasted 17 months, from October 9, 2007 to March 9, 2009. You might notice that these years align with the Great Recession. During the bear market associated with the Great Recession, the S&P 500 lost 50% of its value.
Assuming that the current downward trend falls in line with the average, investors shouldn’t expect to see improvements until fall. However, it’s possible that the trend could change course within weeks or continue moving downward much longer.
How Much Control Do People Have on the Economy?
Governments, companies, and consumers have some control over economic performance. They can’t control every factor, though. Currently, the Federal Reserve plans to use higher interest rates to slow inflation. That approach has worked in the past, but inflation might not respond the same this time.
That’s because inflation has different sources. When the supply of capital is the cause, hiking interest rates is effective in stemming it. In the current environment, supply constraints have pushed up prices so increasing interest rates is not going to be as effective in curtailing rising costs.
It’s also critical to recognize that regulatory authorities can’t make every decision based on how the economy will respond. Sanctions against Russia may have contributed to higher gas prices, contributing to inflation.
While corporations and consumers might not like higher energy prices, it’s difficult to imagine how the U.S. and other countries should respond to Russia’s invasion. Ukraine isn’t a NATO member, so the aggression is unlikely to start a war unless the situation escalates. Still, countries worldwide are condemning Russia’s invading of a sovereign nation. Regardless of economic fallout domestically, nations are taking actions to hurt Russia’s economy as punishment for the decision to invade Ukraine.
Historically, the NASDAQ and other markets have trended upward over the long-term. They experience downturns during regular economic cycles, but they have always recovered and exceeded their previous highs. If the economy has deep, healthy roots, it will heal over time.
Positive Responses to NASDAQ Bear Markets
Dips in the market create exceptional opportunities for cash-holding investors. As bad as it seems to hold cash when inflation is north of 8%, it turns out to be a better bet than the stock markets, which have fallen over 20%. If you have a lot of cash to invest, a bear market makes it possible for you to buy shares at steeply discounted prices. When the NASDAQ recovers, you might find that your shares have doubled or tripled in value.
The prospect of making money from the NASDAQ bear market comes with risk. You could buy stock in companies that do not survive the downturn. Some companies will survive the bear market, but they will struggle to regain their footing. In that situation, you might not make as much as you expected. As a result, it’s best to look for companies that have wide moats, and have historically stood the test of time. Dividend aristocrats and kings are a good place to begin the search for best stocks to buy during a bear market.
The NASDAQ bear market presents problems and opportunities. Pay close attention to how the market moves. When the Federal Reserve pauses rate hikes and it’s clear that liquidity will return to markets, the horizon will be sunny again to buy risk assets. You might find that you can time purchases to take advantage of low prices in companies built for long-term growth.
The bottom line is bear markets create profit opportunities. As prices fall, you can purchase shares at discounted rates. As the list of sellers is exhausted and more investors start to bet that the market is about to trend upward, their collective activity pushes the market in that direction. Then we’ll see a return of those diamond-handed investors who are bullish.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.