Getting Answers: what is a bear market?

Stocks on Monday officially entered a bear market, when the S&P 500 dropped four percent.
Published: Jun. 14, 2022 at 5:30 PM EDT|Updated: Jun. 14, 2022 at 6:44 PM EDT
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SPRINGFIELD, Mass. (WGGB/WSHM) - Stocks on Monday officially entered a bear market, when the S&P 500 dropped four percent.

“There are two animals on Wall Street that get a lot of attention - bulls and bears,” said Matt Farkas, senior vice president with St. Germain Investment Management.

Like a bull charging ahead, a bull market signifies share prices rising, encouraging buying. A bear market is quite the opposite

“…And bears hibernate so bear markets are thought of as kind of retreating a little bit,” Farkas explained.

Farkas told Western Mass News that the stock market’s tumble has put the S&P 500 into a bear market, the term for when stocks decline at least 20 percent from their most recent high. He said there have been 14 bear markets since World War II, which gives us some persepective.

“So on average, it’s about once every five years and the average draw down from peak to trough. It’s about 30 percent. We’re down a little over 20 percent today and so that certainly indicates to us that the worst is likely over,” Farkas added.

It’s the result of Wall Street grappling with the impact of the war in Ukraine and the fed raising interest rates to try to combat inflation at a 40-year-high.

“I think it’s affecting me very effectively,” said Felicia Harvey, who works in Springfield.

Harvey uses the app, Robinhood, to invest and has seen the volatility in her stocks.

“The stock rose, and then it fell, and then in fell even more,” Harvey added.

Farkas said this comes as investors reconsider the prices they’re willing to pay for stocks.

“Volatility tends to come in clusters, so volatility tends to lead to more volatility and we’re going through that right now,” Farkas said.

Bottom line, Farkas said you should keep the long-term in mind.

“If you need the money, that’s a different situation,” Farkas said.

Although he said you should keep an emergency fund, sometimes that runs dry.

“If you have a big purchase and you know you’re going to need those funds in the next six months to a year, I’d say even out to two, years, you may wanna make some changes,” Farkas explained.

However, if you can afford to, it always pays off to keep your investments where they are.

“The price for long-term growth is having to deal with some uncomfortable times,” Farkas noted.