Bear markets, defined as a drop of 19.9% or greater from their previous high, tend to be significantly more severe and prolonged when they occur in conjunction with a recession, according to an investment strategist.
What Happened: According to analysis shared by Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, “Bear markets tend to be larger and longer when they're associated with recessions.”
In a recent post on X, Sonders shared a compelling scatter plot showcasing this relationship using S&P 500 bear market data spanning from 1946 to April 4, 2025. The chart shows bear markets that coincided with recessions and the bear markets that did not.
Bear markets occurring without a recession have historically been shallower and shorter in duration. These instances have a mean drawdown of 30%, spanning between 200 to 250 days. This magnitude and duration are shorter compared to their recession-linked counterparts.
The red circles on the chart, representing bear markets intertwined with economic recessions, are generally clustered towards the bottom-right quadrant. The mean drawdown for such instances shows more than 30% of correction, spanning nearly 400 days.
Notable historical examples like the 2000-2002 tech bubble burst and the 2007-2009 Global Financial Crisis, both accompanied by recessions, saw substantial drawdowns and extended periods of recovery. The longest instance of such a market accompanied by recession was in 1973, which lasted for about 650 days, pulling the index down nearly 50%.
The chart reinforces Sonders’ core message: the presence of a recession acts as a significant amplifier of bear market pain and its longevity.
Why It Matters: While past performance is no guarantee of future results, this historical analysis provides valuable context for investors navigating the current economic landscape.
Understanding the historical relationship between bear markets and recessions can help investors better assess potential risks and adjust their investment strategies accordingly. Following President Donald Trump‘s tariff announcements last Wednesday, markets saw two straight days of losses on Thursday and Friday before closing mixed on Monday, intensifying the recent selloff.
As of Monday, only the Nasdaq 100 index was in the bear market territory, down by 21.56% from its previous high of 22,222.61 points. The S&P 500 was nearing the bear market zone as it was 17.65% below its previous record high of 6,147.43 points. The Dow Jones, on the other hand, was down by 15.77% from its 52-week high of 45,073.63 points.
Goldman Sachs has further increased its U.S. recession forecast to 45% (from 35% on Sunday), citing tighter financial conditions and policy uncertainty, echoing JPMorgan’s 60% global recession odds from last week. However, Jefferies analysts propose that these very headwinds, including Trump’s tariffs, might give tech companies leeway to adjust their financial guidance.
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, advanced in premarket on Tuesday. The SPY was up 2.53% to $517.15, while the QQQ advanced 2.49% to $434.23 according to Benzinga Pro data.
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