ABC News confirmed last month (14 June 2022) that the S&P 500 should now be considered a bear market.

Rising inflation, the effects of war in Europe, and China’s economic slowdown have all led to increased volatility in global markets.

In the face of this uncertainty, the US’s benchmark index fell by more than 21% from a January peak.

But what is a bear market, why is the US experiencing one, and what does it mean for UK investors?

Keep reading to find out.

Bull and bear markets reflect investor confidence and indicate the health of an economy

Markets rise and fall daily, so short-term volatility should always be expected. When an index like the S&P 500 rises or falls by 20% or more, and over a sustained period, a bull or bear market will likely be the result.

A bull market, possibly named for the upward thrust of a bull’s horns, signals a market charge, and requires a rise of 20%.

A bear market on the other hand requires a fall of 20% – reminiscent of the downward swipe of that animal’s attack – and indicates a market in retreat, or hibernating.

Investor confidence is high when stock prices are rising and the market will be bullish. Low investor confidence, though, will see prices plummet and indicate an ailing economy.

A perfect storm of economic factors is influencing the markets currently

After two years of pandemic worries and massive borrowing, a global supply chain crisis, production issues, and labour shortages all helped to raise costs.

Rising fuel bills and petrol shortages at home have plunged the UK into a cost of living crisis. Figures from the Office for National Statistics confirm that inflation reached a new 40-year high in the 12 months to June 2022, of 9.4%.

Earlier this year, Russia’s decision to invade Ukraine led to significant sanctions and more market uncertainty.

China, meanwhile, is feeling the effects of its zero-Covid stance and slowing growth, particularly within its tech industry.

Against these global issues, and a US market firmly in bear territory, the FTSE 100 has fared much better and has so far avoided bear market status.

Bear markets tend to be shorter and are less common than bull markets

The good news for investors is that the general trend of the market is upwards.

Historically, bear markets don’t last as long as bull markets. Due to this, losses accrued during a bear market are generally outweighed by the higher returns (over a longer period) during a bear market.

Figures from Vanguard track bull and bear markets in the FTSE All-Share index between January 1946 and December 2020.

They find that there have been almost 64 bull years with an average length of 5.8 years. During the same period, 11 years have been classed as bear years, averaging just over a year each.

The best thing to do in a bear market is to remain calm

Bear markets can be stressful but remember that the UK economy remains outside of bear territory for now.

The cost of living crisis continues to eat into the disposable income of UK households, meaning that consumers will be trying hard to spend less, while potentially dipping into cash savings.

Along with other global factors – not least the continuing war in Ukraine – these issues are likely to fuel further market uncertainty.

This, though, is the reason why the investment strategies we put in place for our clients are based on long-term goals.

UK investors should keep three key points in mind:

1. Stay calm

We have seen that the general market trend is upward and that bull markets tend to last longer than bear markets.

And while the performance of the S&P 500 is of global importance, avoiding knee-jerk, emotional reactions when markets fall is key.

Staying invested means that funds will have the best chance of achieving returns when the markets recover.

2. Drown out the noise

With a cost of living crisis dominating headlines at home and war continuing in Europe, watching the news can induce anxiety.

Daily checks of investment performance and fund values are normal at worrying times but they could lead to trend-chasing.

Remember that investment is a balance of risk and reward, so ignoring the noise and concentrating on the bigger picture is key.

3. Focus on the long term

A successful investment is based on an individual’s attitude to risk and their long-term goals.

If they haven’t changed, the investment strategy in place needn’t change either.

Get in touch

If you have a client who would benefit from help managing their investments, please get in touch.

Our expertise and experience could help your clients to drown out the noise of global events and focus on their own long-term goals. Email or call 0116 240 7070.

Please note

The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.