(NewsNation) — President Donald Trump’s tariffs have triggered a global stock sell-off, and now the S&P 500 is nearing its first bear market since 2022.
After an early surge Tuesday, the S&P 500 ended the day down 1.6%, bringing the index nearly 19% below its February record.
That’s just shy of bear territory, which is when a stock index falls 20% from a high point.
Wednesday could bring further tumult with Trump’s latest set of tariffs — including a 104% levy on Chinese imports — set to kick in after midnight.
Here’s what to know about bear markets and how long they typically last.
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What is a bear market?
A bear market occurs when a major stock index, such as the S&P 500, declines by 20% or more from a recent high and stays down for a while.
One way to think about it: Bears hibernate, so the term fits a market that’s slowing down or going into retreat. On the flip side, a bull market is when stocks are charging ahead, just like a bull.
A bear market isn’t an official designation, it’s just a shorthand way to describe when markets take a tumble.
Are we in a bear market now?
It depends on which stock index you look at.
The S&P 500 briefly dipped into bear territory on Monday, but it didn’t close low enough to be considered a bear market. As of Tuesday’s close, the S&P 500 was down nearly 19% from its February high, just below the 20% threshold.
The Dow Jones Industrial Average has also avoided a bear market so far, down about 16% from its record in December.
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Meanwhile, the tech-heavy Nasdaq composite has entered a bear market, as has the Russell 2000 index of smaller stocks. Both have dropped more than 20% from recent highs.
In points terms, the bear-market thresholds to watch are 4915.32 for the S&P 500 and 36011.23 for the Dow, according to the Wall Street Journal.
When was the last bear market, and how long did it last?
The most recent bear market for the S&P 500 was in 2022 — a downturn driven by the Russia-Ukraine war, rampant inflation and pandemic-era supply chain disruptions. That bear market lasted from January to October.
There was also a bear market in 2020 at the start of the coronavirus pandemic. However, it took less than three weeks for stocks to rise 20% from their low in March 2020.
Since World War II, bear markets have taken an average of 13 months to go from peak to trough and 27 months to get back to breakeven, according to the Associated Press.
History shows that the faster an index enters a bear market, the shallower they tend to be — a potentially promising sign, given how rapid the recent plunge has been.
A bear market is usually considered over when a stock index climbs 20% from its lowest point and keeps trending up for a while, typically at least six months.
Since 1929, the S&P has entered a bear market 15 times, according to the New York Times.
Does a bear market signal a recession?
Bear markets sometimes precede a recession, but not always.
In the post-World War II era, there have been four bear markets that did not overlap with recessions, according to a recent analysis from Charles Schwab. Over that same period, four recessions occurred without overlapping bear markets.
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Generally, two consecutive quarters of negative real GDP growth marks a recession, but that’s not the official definition.
The National Bureau of Economic Research defines “recession” as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Trump’s trade war has caused several top economists to raise their recession odds in recent weeks, with a U.S. downturn now significantly more likely than it was at the start of the year.
Is it a good time to buy stocks?
It’s impossible to know if stocks will drop further, but some investors may see the downturn as a buying opportunity.
That’s especially true for younger investors with long time horizons who don’t plan to touch the money for years. Financial advisers generally recommend weathering the ups and downs of the stock market, so long as your portfolio is well diversified and aligned with your goals.
Should you take your money out of the stock market?
There’s good reason to be optimistic in the long term.
Historically, some of the best days on Wall Street have come shortly after the worst. And the S&P 500 has come back from every one of its prior bear markets to eventually rise to another all-time high.
On the other hand, investors with shorter time horizons, particularly those approaching retirement, may take a different approach. Those who need the money now may decide to lock in their gains. Volatility can be a good time to assess your portfolio’s risk level.
A common guideline is the Rule of 110, which suggests subtracting your age from 110 to determine the share of your portfolio that should be in stocks.
Analysts at Morgan Stanley recently warned investors to brace for an even steeper drop in the S&P 500.
The Associated Press contributed to this report.
