This is a free excerpt from one of Shortform’s Articles. We give you all the important information you need to know about current events and more.
Don't miss out on the whole story. Sign up for a free trial here .
Is a bear market coming in 2025? What signs point to a major stock market downturn? How can investors protect their wealth if we experience a bear market in 2025?
Market experts are divided on what lies ahead for investors. While some analysts warn of an impending crash reminiscent of 1929, others see continued growth potential driven by artificial intelligence and strong market fundamentals.
Keep reading to discover key indicators that could signal the next major market shift and learn strategies to safeguard your investments.
The Prospects of a Bear Market in 2025
Is a bear market coming in 2025? With worrisome economic indicators like high inflation, slowing growth, and geopolitical uncertainties, experts are debating whether the US stock market is on the brink of a prolonged downturn, with some predicting an imminent bear market or even a potential crash reminiscent of 1929. Despite these dire predictions, some analysts remain optimistic, citing strong market momentum, projected earnings growth across all sectors, and the growing influence of AI technology as signs of a potential bull market. We’ll examine experts’ views on these contrasting perspectives and explore how investors can navigate this uncertain market landscape while protecting their portfolios.
What Are Bull and Bear Markets?
Bear markets and bull markets, often discussed in the context of the S&P 500, are defined by significant shifts in the index’s performance. A bear market is characterized by a drop of at least 20% from the S&P 500’s peak during a bull market. A bull market occurs when the index recovers by at least 20% from its low during a bear market and sets a new record high. Pinpointing the exact start of these market phases can only be done retrospectively.
For example, the bull market that was officially recognized on January 19, 2024, in fact began much earlier—on Oct. 12, 2022—when the S&P 500 reached its lowest point during a preceding bear market. The last bear market, which occurred between February 2020 and October 2022, was triggered by the Covid-19 pandemic and related economic disruptions.
| How the Market Cycle Works In Stock Market 101, Michele Cagan sheds light on the stock market’s habitual trends, which include prolonged periods of rising values (known as bull markets) that are punctuated by consistent periods where prices decline (known as bear markets). She elucidates that, during periods of market growth, a combination of strong economic growth and optimistic outlooks from investors drives an increase in the value of stocks. Conversely, she describes a general mood of pessimism, economic deceleration, and extensive worry that results in investors selling their stocks, thereby driving down the prices during bear market phases. Cagan clarifies the approach to discerning these cycles by meticulously observing the actions of market participants—in addition to scrutinizing economic signals and tendencies within the market. During times when the market exhibits a strong upward movement, stock prices tend to rise. During bear markets, prices typically decline and trading volumes decrease, resulting in a hesitancy among investors to acquire assets, even though they might be available at reduced prices. She emphasizes the necessity of identifying these patterns to modify one’s investment strategy and minimize potential economic losses. |
The Bearish Perspective
Experts warn that the US may be on the verge of a bear market, citing stagflation—a situation where economic growth slows while inflation rises. Slowed economic growth can lead to decreased corporate profits and lower stock prices, while high inflation erodes the purchasing power of money, making investments less valuable. Together, these factors can significantly impact investor confidence and trigger a sustained market downturn.
Other concerning signs of an impending bear market include stalled Federal Reserve interest rate cuts due to persistently high inflation and slower GDP growth, which could fuel investor uncertainty. It could also increase protectionist policies among wealthy nations, which in turn could obstruct global trade and affect multinational corporations’ profitability, threatening global economic stability.
Analysts add that any perceived signs of weakness in large companies with significant AI investments could deter investors from the stock market. Moreover, they caution that further declines in consumer confidence, which in April fell to its lowest level since mid-2022, could destabilize the market.
(Shortform note: According to Beating the Street by Peter Lynch, you’re likely to lose money when bear markets strike. But, this isn’t the time to flee the market in a panic. Indeed, Lynch doesn’t think of bear markets as market collapses but rather as market corrections—times when previously overvalued stocks come back to Earth and settle at prices that more accurately reflect their worth. And it’s during these market corrections that savvy investors can seize the opportunity to find bargains and buy stocks at discount prices. By contrast, writes Lynch, bull markets [when stock prices experience a prolonged rise] are often a sign of overpriced stocks, where you’ll be hard-pressed to find good bargains.)
The Bullish Perspective
Other analysts predict a more hopeful outlook, seeing signs of a bull market ahead. These include:
- Positive market indicators such as:
- The S&P 500’s strong momentum at the end of 2023 and start of 2024.
- Historical data showing that the average S&P 500 bull market has generated a return of 157% and lasted more than four years—suggesting that the current rally could continue.
- The Federal Reserve policy shift from interest rate hikes to cuts, which could further stimulate market growth.
- The growing influence of AI as a successful investment strategy, which is fueling overall optimism for the tech sector, including mega-cap stocks like Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Tesla, and Nvidia.
What’s Next
As the debate about the likelihood of a bear market continues, analysts emphasize the importance of monitoring key factors including the Federal Reserve’s anticipated interest rate cuts—which could either stimulate growth or, if handled poorly, tip the economy into a recession—as well as consumer spending, corporate earnings, and external risks such as global tensions.
While some, like Hussman, predict dire outcomes, others see opportunities even in challenging times. They recommend that investors consider diversifying their portfolios and adopting steady investment strategies like dollar-cost averaging to navigate the uncertainty and mitigate the impact of a potential prolonged downturn.
Want to fast-track your learning? With Shortform, you’ll gain insights you won't find anywhere else .
Here's what you’ll get when you sign up for Shortform :
- Complicated ideas explained in simple and concise ways
- Smart analysis that connects what you’re reading to other key concepts
- Writing with zero fluff because we know how important your time is
