What Does a Bear Market Mean for Wall Street?

Home UPSC Current Affairs What does a bear market mean for Wall Street?

UPSC CURRENT AFFAIRS – 10th April 2025

Why in News?

Wall Street is facing the threat of another bear market due to rising global economic uncertainty caused by President Trump’s new round of tariffs on imports.

Introduction

The international economy is once again experiencing turmoil, as the aggressive tariffs of the Trump administration are poised to ignite another bear market on Wall Street.
A bear market is an occurrence when major stock indices such as the S&P 500 or the Dow Jones Industrial Average decline by at least a 20% drop from their most recent peak.
Wall Street, having endured a bear market during 2022 and the quick fall in the early part of 2020, is presently on high alert for another downward trend fueled by tariffs and their economic impact.
Bear Market Definition: A bear market arises when stock indexes decline by more than 20% from their high for a prolonged period of time.
Duration: Typically, bear markets last 13 months on average to reach the bottom and 27 months to breakeven.
Average Decline: Historically, the S&P 500 index averages a 33% loss in bear markets.
Fast Declines: Rapid plunges into bear markets usually result in less deep declines; a 28% average loss for quicker drops.
Longest Bear Market: The longest bear market took 61 months, with a loss of 60%.

Trump Tariff Blitz: A Fresh Economic Burden

Recent Tariff Declaration: President Trump’s tariffs encompass a 10% standard duty on goods from every nation and more tariff charges for trade surplus nations that have surplus exports to the U.S.
Global Market Reaction: The news ignited global market selloffs, as major plummeting took place in the S&P 500 index, which already downgraded by 17.6% since the February 2025 high.

Tariff Effect

Higher Prices: Import duties get transmitted to consumers, possibly raising inflation.
Retaliation: Nations such as China have even imposed retaliatory tariffs, raising tensions further.
Uncertainty: Tariffs lead to uncertainty among enterprises regarding investment, manufacturing, and international value chains.
Bear Market Features under the Umbrella of Tariff Uncertainty
Uncertainty and Apprehension: Apprehension regarding surging trade wars and tariff effects has heightened uncertainty, which can intensify a bear market.
Tech Stocks: The Nasdaq Composite is already in a bear market, which is a sign of underlying market worries, particularly for technology-intensive industries.
S&P 500 Decline: The S&P 500 declined by 17.6%, reflecting serious market pressure.

Investor Strategies During Bear Markets

Long-Term Mindset: Financial planners advise investors to hold on to a long-term investment approach and avoid panicking and selling.
Historical Comeback: In spite of past bear markets, the S&P 500 has always come back, with robust increases in the long run.
Liquidity Needs: If there is a need for investors to have access to money in the near term, limiting stock exposure can be prudent.
Long-Term Investor Opportunities: Bear markets can provide opportunities for purchase for investors who do not need near-term liquidity.

The Global Impact of Tariffs: A Delicate Balance

Global Supply Chains: Tariffs are affecting global supply chains, and it is challenging for companies to select suppliers, factories, and price points.
Economic Disturbances: Economic hurt spreads through inflation, increased costs of production, and decreased consumer demand, creating a negative feedback loop.

Conclusion

Market Resilience: Even with present-day uncertainties, markets have been known to recover in the long run, with bear markets eventually resulting in long-term gains for investors.
Patience and Strategy: Patience and strategy are essential in order to navigate bear markets, particularly when tariffs and global tensions are fueling market volatility.

For Short-Term Investors: If the need for current access to money is necessary, it might be wise to reduce exposure to equities when there is increased risk in the market.