Bear Markets and Recessions Happen More Often Than You Think

Spending money can be delightful. But losing it? If you are watching big chunks of hard-earned savings disappear, losing money can be sheer misery.

That’s why the headlines proclaiming the arrival of a bear market have been so disturbing. Strictly speaking, a bear market is simply Wall Street jargon for a stock market decline of at least 20 percent. But this is not merely a matter of numbers. The term’s technical meaning doesn’t convey the full human experience.

Really, the fact that we are in a bear market means that a lot of people have already lost a ton of money. Until the momentum shifts, as it eventually will, considerably more wealth will go down the drain. Panicking only makes matters worse. For those who are taking enormous losses for the first time, a bear market can be the shattering of dreams, a time for suffering and grief.

Far more significant trouble could be coming, though, for the millions of people who have never been able to put aside enough money to lose it in the stock market. A recession may well be on the way. The United States has been in recession 14 percent of the time since World War II, according to data provided by the National Bureau of Economic Research, the quasi-official entity that declares when recessions start and stop in the United States.

With the Federal Reserve raising the benchmark federal funds rate 0.75 percentage points on Wednesday, and forecasting further increases to combat raging inflation, we certainly could be headed toward another recession. The Fed is also paring the bonds and other securities that it amassed on its $9 trillion balance sheet to bolster the economy. In a policy reversal, it is now engaged in “quantitative tightening,” and that will contribute to an economic slowdown.

Like bear markets, recessions have a dry, technical definition. A recession is “a significant decline in economic activity that is spread across the economy and lasts more than a few months,” according to the economic research bureau.

But, basically, a recession amounts to this for millions of people, many of whom are utterly indifferent to the vagaries of the stock and bond markets: Hardworking people will lose their jobs, millions of families will be short on money and countless people will suffer setbacks to their physical and mental health.

This is grim stuff. If I could design a world that eliminated the misery of bear markets and recessions, of course, I would.

But don’t wait for that to happen. The best we can do now is to recognize that bear markets and their far more troubling cousins, recessions, are not rare or truly unexpected events, even if the relative calm of the last decade may deceive us into thinking so.

Despite policymakers’ best efforts, history shows that both bear markets and recessions are about as common as severe storms in New York. Learn to live with them, much as you do bad weather.

Practical steps

Stocks don’t always go up. Risk is always present.

This may seem a banal insight, yet it is never entirely understood until…