What if there’s a bear market in 2025? – John Plassard, Mirabaud Group

By John Plassard, senior investment specialist at Mirabaud Group

The data on bull markets shows that historically, bullishness leads to more bullishness! However, at a time when everyone is worried about Trump and DeepSeek, we thought it would be interesting to take a closer look at bear markets…

The facts 

The S&P 500 index broke through a series of (almost) unbelievable thresholds on its steady ascent towards 6,000 points. Today, after last night’s fall, investors are afraid of facing a more substantial drop before finding support. Signs of excessive exuberance and nervousness are everywhere: The S&P 500, which gained 61% (total return) through Monday’s close, pushed the index more than 6% above its 200-day moving average. The investors’ favourite index is also above its 50- and 100-day moving averages. 

 
 

Hedge fund exposure to loss-making technology companies is close to its highest level for two years. Across the stock market, positions are stretched and demand for protection against losses (hedging) is weak. No one knows whether Monday’s fall heralds a turnaround in momentum, but economic, macroeconomic, microeconomic, monetary and political questions have rarely been so numerous.

Definition 

A series of definitions is essential before continuing with this analysis:  

  • Bull market: A prolonged period during which asset prices, usually equities, experience a sustained upward trend. A bull market is often considered to occur when prices rise by at least 20% and remain above that level for several months. 
  • Bear market: A prolonged period during which asset prices, usually equities, experience a sustained downward trend. A bear market is often considered to occur when prices fall by at least 20% from a recent peak and remain on this downward trajectory for a sustained period. 
  • Stock market crash: A sudden and rapid fall in asset prices, usually over a short period (a few days or weeks). Stock market crashes can occur as part of a bear market but are not systematic. There is no universally accepted definition of a stock market crash in terms of percentage decline. However, it is generally considered that a fall of more than 20% from a recent peak over a short period (a few days or weeks) constitutes a stock market crash. 

Here are a few examples of historical stock market crashes with their percentage decline: 

 
 
  • Crash of 1929: 48% fall in less than two months 
  • Black Monday 1987: 22.6% fall in a single day 
  • Financial crash of 2008: 50% fall over several months 

Should we be afraid of crashes? 

The term itself – crash – is frightening. But there have only been five crashes of 50% or worse in the last 100 years. Crashes do happen, but they are rare. Therefore, it makes no sense to spend 100% of your time preparing for something that is only likely to happen 5% of the time, and therefore not as often as some would have us believe.  

Bear markets and corrections are more common than systemic panics. 

How long do we spend in recession and bear market? 

The resilience of the US economy since the great financial crisis is quite remarkable, with only two months of recession in the last 15 and a half years – barely 1% of the time. In the 2010s, there was simply no recession! 

Historically, recessions were much more frequent, particularly at the beginning of the 20th century, when the United States was still an emerging economy. 

Today, the economy is benefiting from greater diversification, greater maturity and a better balance of power thanks to proactive monetary and fiscal policies that are helping to mitigate slowdowns. 

This progress does not mean that recessions are a thing of the past; it simply means that they are less frequent and more isolated.

Bear markets have also become less frequent, but are still inevitable, as demonstrated by 2022, when a bear market in equities and bonds occurred despite the absence of an official recession. Just as with recessions, there was no bear market in the S&P 500 in the 2010s. 

This “modern stability” is a double-edged sword: if there are fewer economic shocks, society risks being less well prepared to face difficult times.

A bear market in 2025? 

Many chartist experts believe that we could be preparing for a bear market after the recent record highs. The stock market rose sharply in 2023 and 2024. The Magnificent 7 have generated most of the market’s gains. If these stocks fall, for example, the market could also drop.

However, we have already experienced two distinct bear markets during this decade. During the Covid crisis, the S&P 500 fell by 34%. Then, during the bear market of 2022, the S&P fell by 25%. 

That’s two bear markets in the space of three years, which is quite rare. If we have another bear market in 2025, that will make three bear markets in 6 years, which is even rarer. 

According to Ben Carlson, there have been 55 double-digit corrections since 1928, including 22 bear markets with losses of 20% or more. This means that the US stock market has experienced a double-digit correction every year and a half or so, and a bear market every four years on average. 

We haven’t had back-to-back bear markets since the Great Depression. The crash of 1928 and the years that followed were no picnic either. First there was the crash of 1937, followed by the bear markets of 1938, 1939 and 1940. It is therefore possible to experience several successive bear markets over a short period. 

If history is anything to go by, we can assume that the prospect of another bear market in the short term is unlikely, but not impossible (remember that economic cycles are becoming shorter and shorter). 

What happens after a bear market? 

Historically, it has taken the index an average of 19 months to recover from a fall of 20% or more. As the table above shows, recovery times are highly variable and depend on the economic environment. When bear markets are not accompanied by a recession, it takes an average of just 10 months to reach a new record high.

Since 1950, the average bull market expansion has lasted 54 months, with an average total return of 152%. This shows that bull markets have lasted three times longer than bear markets.  

Moreover, after the bear markets of 1982, 1987, 2002 and 2009, the stock market reached a new peak in 32 months on average.

A portfolio composed of 65% equities and 35% bonds recovered in 11 months, reinforcing the value of diversification and a long-term approach. 

Keep calm and stay invested! 

The ideal would be to avoid market downturns altogether. But the reality is that it is impossible to predict them with any precision.  To try to do so would be to inevitably miss the upside in the hope of avoiding the downside. What’s more, trying to time the market means one must constantly predict 

the high and the low, which is impossible. 

By selling your investments after they have fallen, in the hope of avoiding a further fall, you increase the possibility of turning short-term falls into real losses in your portfolio.  

Even the best investments are not immune to downturns, but by staying invested, you are more likely to participate in their rebound, which helps to ensure that temporary downturns are only temporary. 

Bear markets are often accompanied by strong rallies that appear without warning. Going back to 1970, bear markets have, on average, included more than two separate 10% rallies, with the largest averaging a gain of 17%.  

And, above all, bear markets often turn into bull markets rapidly, with big gains at the start of the recovery.  

Over the last five bear market recoveries, the S&P 500 has gained an average of 25% in the first three months of a new bull market. 

Conclusion 

It’s hard to talk about bear markets when indices are close to new highs, especially as historically, a rise is often followed by more gains! However, if a bear market were to materialise this year (which would be unusual, but not impossible), the main thing would be not to panic, but to stay invested and seize every investment opportunity. 

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