Navigating a Bear Market: Strategies for Thriving in Difficult Market Conditions

A bear market is an economic phenomenon that occurs when the market, index, or total stock market falls by 20% from its most recent high.[0] These markets can be periodic or long-term, but typically last for only a year—shorter than the typical bull market, which lasts seven years. During a bear market, investors may be tempted to pile into stocks in hopes of earning quick gains, but there are better strategies to navigate through bear markets. Dollar-cost averaging is one such strategy, as it involves making steady contributions to a portfolio in difficult market environments.

The current economic environment is rife with warning signs of a potential recession, with business activity and consumer spending contracting. But recent data, including a stable labor market and decelerating inflation, suggest a soft landing may still be possible.[1] Limiting the severity of an economic downturn requires inflation pressures to be eased and a stable job market with only minimal additional tightening by the Federal Reserve.[2]

Markets may also be pleasantly surprised by a modest, rather than significant, earnings decline in 2023 supported by strong revenue, cost controls, and a healthy U.S. consumer.[1] Additionally, China’s reopening is more bullish than bearish, but geopolitical tensions remain a risk.[1] At present, investing in emerging market equities with a heavy focus on China is more of a short-term trade than a long-term investment.[1]

In order to make the most of a bear market, investors should look to strategies like dollar-cost averaging.[3] This means investing the same dollar amount systematically over a period of time, which helps protect investors from market fluctuations and sudden plunges.[4] By being disciplined and making regular investments, investors can overcome fear in difficult market environments and come out strong.[4]

0. “How to survive the financial jerks of a bear market” Reader’s Digest, 21 Jan. 2023, https://www.readersdigest.co.uk/money/managing-your-money/how-to-survive-the-financial-jerks-of-a-bear-market

1. “Market preview: A feisty bear-bull debate” Insurance News Net, 23 Jan. 2023, https://insurancenewsnet.com/innarticle/market-preview-a-feisty-bear-bull-debate

2. “The Bull-Bear Debate: Laying Out the Bull & Bear Cases for Stocks” LPL Financial, 25 Jan. 2023, https://www.lpl.com/newsroom/read/market-signals-podcast-bull-bear-debate-laying-out-bull-bear-cases-for-stocks.html

3. “What you need to know about investing in bear markets” Morning Brew, 31 Jan. 2023, https://www.morningbrew.com/daily/stories/2023/1/31/need-to-know-about-investing-in-bear-markets

4. “Opportunities for investors in this bear market” Daily Herald, 5 Feb. 2023, https://www.dailyherald.com/business/20230205/opportunities-for-investors-in-this-bear-market