For the first time in 14 years, share prices have fallen to record-low levels, encouraging fears of a recession amongst investors. Globally, the stock market has faced a decline of over $9 trillion so far this year, primarily as a result of soaring inflation. But what exactly is a bear market, how long do they last, and what can you do in the meantime to find consistent returns on your investment?

What is a bear market?

A bear market is a long period of price decline, at least 20% over roughly two months or more. Investor attitude can also be a benchmark used to create a bear market. Herd behaviour is common when it comes to stocks, so if investors grow more risk-averse within a particular period, a trend can build, influencing further decisions and leading to a decline in the market.

Various factors can contribute to a bear market, such as the economic shocks of war or a pandemic, both of which have had a global impact in recent months and years. In contrast, a bull market is when a market sees an upward trend over a long period of time. But while bull markets are fuelled by optimism and economic strength, bear markets signify a slowdown and worries of a recession strike a rush amongst investors to protect their shares against losses.

Do bear markets lead to a recession?

Despite fears, bear markets don’t always lead to a recession. Looking at historic data, there have been 26 bear markets since 1929 and only 15 recessions during that time, but whilst bear markets tend to be the result of economic decline, that doesn’t always mean that a recession is around the corner.

In terms of the current bear market, investors could be seeing some hope on the horizon. In May 2022, the UK economy grew by 0.5%, higher than the flat growth that experts had predicted. According to the ONS, the main contributors to the recovery were the health and construction industries. However, let’s not forget that inflation is currently at a record-high level, with forecasts to reach 11% by the end of the year. So, while investors can take some comfort in past performance and the recent economic improvement, it’s important to be mindful that that’s not always an indication of future circumstances and shouldn’t be used as a basis for future investment decisions.

How long can a bear market last?

Since 1929, bear markets have been common. As with any economic pattern, it’s difficult to say how long a bear market can last, but looking at previous trends, they tend to be relatively brief. On average, a bear market lasts around 9-10 months, and it historically occurs, on average, every 3.6 years. Since 2000, there have been 5 bear markets (with a lengthy rest between 2009 and 2020), which lasted between 33 and 546 days.

How much have markets fallen in 2022?

Surging inflation and monetary tightening by the central banks have been key contributors to the decline of the stock market and it’s fuelling worry amongst investors. The concern is that, should inflation keep rising, interest rates will become more drastic in response and, therefore, minimise potential returns.

The chart below shows the rapid decline in various stock markets since the start of this year.

So far in 2022, most stock markets are approaching the bear market territory at around a 15% decline, and many have passed the -20% threshold. With the crumble of crypto in recent months, it’s no surprise that this sector has seen the harshest decline with a value depreciation of more than two-thirds since November 2021. More specifically, Bitcoin fell by over 50% since the end of 2021, and by over 70% in its lifetime.

Can you make money in a bear market?

Despite a common fear of losses, there are options to protect funds and generate profits in a bear market. There’s no doubt that investors need to be quite savvy with their strategies around falling prices but keep calm – bear markets can present opportunities if approached correctly.

1. Short selling

Suitable for sophisticated investors and traders, short selling is often used as a hedge against market downturns. When short selling, investors borrow shares, sell them on the open market, and buy them back later when the value drops. While this could be a beneficial strategy in a bear market, investors should be prepared to take on a high level of volatility as market changes can be unpredictable.

2. Safe-haven assets

These are assets that generally hold their value while the wider market declines, enabling investors to protect their money when prices fall. Safe-haven assets often include gold or government bonds.

 3. Consumer staples

Investors may find buying stocks in consumer staples an attractive option to help generate profit in a bear market. These include, for example, food or drinks companies, which will always be in demand regardless of the economic status.

 4. Buy low, sell high

Despite falling prices, the intrinsic value of good stocks could remain, and they will likely recover. This could present suitable profit opportunities for investors by buying these stocks when they’re cheap and selling when the market improves.

Finding consistent returns in a bear market

For risk-averse investors looking for some stability in a shaky market, fixed-rate investment bonds could offer a suitable solution. Regardless of the market value, price drops, or inflation, fixed rates of return mean that you know exactly what you’re getting.

At Propiteer Capital, we offer reliable, fixed rates of return ranging between 4.5% and 9.5% pa, with security taken against top-quality UK assets. Investments are dedicated to a variety of asset activities, including buy-to-lets, branded hotels, and build-to-sell models, which include cherry-picked developments that are profitable and recession-resilient. Detailed below are the key features of each investment type:

Residential Rentals

·         Renting of completed buy-to-let apartments

·         Popular locations in transient cities

·         Purpose-built quality living units

·         Acquisition decisions based on rental income

·         Recession-resilient asset class

Branded Hotels

·         Occupancy delivered from Hilton and Marriott booking engines with 230 million members combined

·         High-demand locations

·         Up to 20 years’ regional exclusivity per hotel

·         Ultra-efficient ‘focused service’ models for higher profits

·         Both hotel brands have 7 ‘focused service’ sub-brands to help target each geographical region

Development Property

·         Build-to-sell projects completed and sold to release development profits

·         Cover UK’s most robust locations

·         A Private Rental Scheme running in Dublin, Europe’s fastest-growing economy with unit values based on rent

·         Robust against inflation via quality properties within the London halo effect and high demand growth regions

·         Private rental schemes valued on high yields and become more popular during recessions

If you’re looking for a steady investment solution in a bearish market, contact us today. You can find out more about our bonds on our website or browse our portfolio to see some of our previous and existing projects. You can also hear about updates and upcoming projects on our blog or LinkedIn page.

Rates are accurate at the date of publishing. For our latest rates, please visit our homepage.

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