3 things you should know about recessions and bear markets
Historically, it’s exceedingly rare for a bear market to occur without a recession. Here’s what you need to know.
Source: Shutterstock
KEY POINTS
- Nasdaq entered a bear market after a -22% fall from recent highs, while S&P 500 nears one at -18.9% and ASX 200 holds steady at -14%
- S&P 500 bear markets are long and deep, while the ASX 200 tends to fare slightly better in both duration and drawdown
- Recessions almost always accompany bear markets, though rare exceptions recover fast.
A bear market is typically defined by a decline of 20% or more from recent highs in a broad market index. Last Friday, the tech-heavy Nasdaq officially entered bear market territory, having fallen 22% from its February 19 peak.
The S&P 500 isn’t far behind, currently down 18.9% over the same period, teetering on the edge of its own bearish plunge. Meanwhile, the ASX 200 has more breathing room, with a 14% drop from its February 14 high — still a notable decline, though not yet in bear market territory. Even so, as Wall Street stumbles amid growing uncertainty, it’s hard to shake a creeping sense of pessimism.
With markets facing an escalating trade war, inflation reacceleration risks, and weakening economic growth from key trading partners, the outlook feels increasingly precarious. To navigate these turbulent times, here are three key insights into the nature of a typical bear market.
What's the worst that could happen?
Bear markets are often long, grueling periods of decline. For the S&P 500, they’re synonymous with extended pain, as illustrated by the historical data below.
Source: George Noble
The ASX 200, however, tends to fare slightly better. While it’s not immune to bearish downturns, its major bear markets have historically been less severe in both duration and depth compared to Wall Street.
Source: Market Index
Recessions accompany bear markets
Bear markets and recessions tend to go hand in hand. In fact, it’s exceedingly rare — happening only three times in the past century — for a bear market to occur without an accompanying recession. According to GlobalData TS Lombard, non-recessionary bear markets share distinct traits:
Shallower Declines: In 1966, 1987, and 2022, the S&P 500 saw drawdowns of roughly 22%, 36%, and 25%, respectively. While these drops are significant, they pale in comparison to the 30-50% declines typical of recessionary bear markets. Over the same periods, the ASX 200 experienced drawdowns of approximately 20%, 50%, and 15%, respectively.
Shorter Duration: Non-recessionary bear markets are short-lived. In those same years — 1966, 1987, and 2022 — the S&P 500 recovered in about seven months on average, while the ASX 200 bounced back even faster, averaging just five months. These rapid recoveries reflect resilient underlying fundamentals, with markets crashing hard but rebounding swiftly. By contrast, recessionary bear markets drag on for 18-20 months, fueled by prolonged economic distress.
Source: UBS
The market bottom's before earnings
If a bear market is indeed on the horizon, here’s a key data point to keep in mind: historically, the market tends to hit its low point two to three quarters before corporate earnings bottom out.
This pattern emerges as stock multiples begin to climb in anticipation of central bank easing and supportive policies, and the lagged nature of earnings reports.
Source: Goldman Sachs
