June 16, 2022 | By Jessica Goedtel, CFP®
On Monday, June 14th, the S&P officially hit bear market territory. As of the day’s close, it had declined 21.8% from its high on January 3, 2022. So far, not a great start to the week. But what does that even mean, and how might it affect you?
What is a bear market?
A bear market is defined as a drop of 20% or more from a recent peak. Its twin, the bull market, is a 20% increase from a low point.
Is this the same thing as a recession?
Short answer: no. A recession is a much larger economic force, defined as at least two consecutive quarters of a reduction in the gross domestic product (GDP). What’s worrisome, though, is that a bear market often is a signal that a recession is coming. Coupled with negative GDP growth in the first quarter of 2022 and inflation up 8.6% over the past 12 months, it’s understandable why people are getting spooked.
This all sounds awful. What does this mean for me?
Short answer: I don’t know. There are many “ifs” here: if things continue to get worse if a bear market means a recession is coming if we are in a recession. If all of those ifs are true, the impact on you could be wildly different than your friends. Some of you may remember the Great Recession of 2008, but if you don’t, this Reddit thread has a collection of stories (be warned, it’s depressing).
A matter of perspective though: recessions are a normal part of an economic cycle. They happen, the most recent one during the pandemic. Sure, they are no fun to go through. But wishing they won’t happen isn’t good for the long-term health of the economy.
What do I do then? Do I stock up on bear spray?
There are a couple of things you can do right now if you are worried. Put extra cash away where you can, preferably in a high-yield savings account so you have easy access to the funds.
If the volatility of the market makes you queasy, try not to look at your retirement portfolio. If you’ve got 30+ years more to retirement, you’ve got plenty of time to recover.
Try to hold off on large, unplanned purchases to save your cash in case of an emergency. Cut down some of your expenses, even if it’s just temporarily – especially with everything costing more these days, now is a great time to reevaluate.
If all this talk of recessions and bear markets still has you worried and you need someone to talk to, you can always book a complimentary call. I’m here to listen.
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