Navigating the Cycles of Bear Markets

Selling early during bear markets generally proves more beneficial than waiting to sell during the subsequent market recovery, as the initial months of a bear market can result in losses equivalent to gains made in the final months of a bull market. Historical patterns indicate that cyclical bear markets—often linked to rising interest rates and inflation—typically lead to around 30% declines in equity prices over three to six months before recovery occurs. Event-driven bear markets, triggered by unforeseen shocks like commodity price surges or geopolitical conflicts, can also cause similar price drops, but they tend to recover more quickly. In contrast, structural bear markets, though rarer, are more severe, often resulting in approximately 60% declines over extended periods—sometimes five to ten years. These structural declines are usually preceded by market bubbles and often coincide with banking crises, notably seen during significant historical downturns such as in 1929 and the financial crisis of 2007-2008. Understanding these bear market types aids in making informed investment decisions during periods of volatility.