Why 20? Five Bear Markets That Almost Occurred

Why 20%? Five Bear Markets that Almost Occurred

Dr. Bryan Taylor, Chief Economist, Global Financial Data


              Why 20%? 

The definition of a bear market is a decline of 20% or more in a major stock market index.  But why should it be 20%?  Is it because human beings have 20 digits?  Why not 25%?  Or why not 19%?  If 19% were the criterion for a bear market, there would have been five additional bear markets in the S&P 500 during the past 50 years.

              Since 1957 when the S&P 500 was introduced, there have been five times when the S&P 500 declined by 19%, but not 20%.  These five instances are provided in Table 1.


Market Top


Market Bottom




























Table 1.  S&P 500 Market Declines of 19%, 1957 to 2024


              It is interesting that each of these stock market declines stopped just before they reached 20% indicating an “official” bear market.  Other indices did decline by over 20% during the same periods of time.  The Dow Jones Industrial Average declined by 26.87% in 1976 and by 21.16% in 1990. NASDAQ declined by 32.96% in 1990, by 29.55% in 1998 and by 23.64% in 2018. Four of the five declines produced “official” bear markets in other U.S. indices. 

              Each of the years that had a market top also provided market tops in markets outside of the United States.  There were market tops in 6 markets in 1976, 10 in 1990, 16 in 1998, 12 in 2011 and 10 in 2018. The number of market tops in developed markets each year is illustrated in Figure 1.


Figure 1.  Market Tops in Developed Markets, 1800 to 2023

              There were economic factors that drove the market down in each of these instances, The 1976 bear market was caused by concerns over rising interest rates and inflation, the 1990 bear market was caused by an eight-month recession and the start of the Iraq war when it invaded Kuwait, the 1998 bear market was caused by the crash of markets in Thailand, Indonesia, Korea and other Asian countries, the 2011 bear market occurred due to fears of contagion of the European sovereign debt crisis in Spain and Italy, and the 2018 bear market was caused by concern over the Fed raising interest rates and the economy slowing down.  Many European markets began their bear market in 2018 which ended in the Covid Bear of 2020. It is important to keep track of the number of bear markets across the globe. 

Whether investors lose 19% of their investment or 20% of their investment is a small matter.  A loss is a loss.  Once the bear market ends, a new bull market begins, and investors can regain their losses. A bear market is just a definition. Investors should focus on their returns over time, not on whether the market has entered into an “official” bear market.

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