Five past bear markets
and what they taught us

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April 2022

As the world learns to live with Covid, markets have remained volatile in the face of the shifting monetary policy landscape, and recently elevated geopolitical risks. Here, the Global Economics and Investment Analysis team takes a look at five bear markets from the past five decades to glean what lessons can be learned for today’s investors.


1. The Global Financial Crisis

In many ways, the world is still recovering from the impact of the global financial crisis of 2008–9 and the policy decisions resulting from it. It was the biggest crisis since the Great Depression, and its roots lay in a U.S. debt-fueled home-purchase binge, which led to a spike in house prices.

At the same time, U.S. lenders relaxed their lending standards, such as approving mortgages without requiring proof of assets or income. A critical flaw in the thinking behind these loans—and the complex securities related to them—was the assumption that house prices would not fall.

The financial system started to crumble under the weight of these low-quality loans (creating so-called subprime mortgages), and many flagship financial services companies went bankrupt or were sold at distressed prices. The bear market that resulted lasted 17 months (October 2007–March 2009), with the S&P 500 Index losing more than half (54%) its value.1

Extraordinary monetary policies were adopted by the U.S. Federal Reserve (Fed) and other central banks to save the financial system. This set a precedent for the aggressive policy actions taken during the European debt crisis and the current crisis.

Unfortunately, there is no warning as to when a bubble will burst. Investors can only try to understand when markets appear extended, question all assumptions underpinning market conditions, and adjust for risk appropriately.

2. The Dot-Com Crash

Exuberant investment in technology companies, often with scant regard to the solidity of their business models, led to a tech bubble in the late 1990s. An unpreceded number of private companies offered shares to investors to raise capital during 1999 and 2000, and the market became increasingly speculative. Companies found raising capital easy with accommodating capital markets, which led to surging stock prices. This was also the era of some major financial accounting scandals, notably World Com and Enron.

The market was already struggling to shake off the excess from prior years when the terrorist attacks of September 11, 2001, occurred. This helped push the economy into a recession—a 30-month bear market, during which the S&P 500 Index lost just under half its value.2

The signs, however, had been there for those who cared to look for them. Stock prices were rising way ahead of earnings, and many companies had dubious business models. By sticking to fundamentals, modeling a company’s business growth, understanding its product set, intellectual property, or business model investors can properly assess a company’s prospect for growth.

3. The Gulf War

The U.S. economy had already been weak as a result of tighter monetary policy2 when the Gulf War began in August 1990, leading to an accelerating decline in stocks.

The war caused oil prices to spike to their highest levels in a decade and a recession followed in the United States. The downturn, however, ended up almost as short-lived as the war itself, with the market bottoming in October 1990 and making new highs by February 1991.

Conflicts and other unpredictable and disruptive global events, however, will always be part of the investment landscape. Skittishness during increased market volatility can lead to questionable decisions. Investors should remain focused and look past short-term noise for long-term opportunities.

4. Black Monday

The bear market of 1987 was one of the first to highlight the potential impact of computer models used to guide hedging and trading strategies. There is continuing debate about whether these quantitative strategies, known as “portfolio insurance,” contributed to both the rise in valuations and exacerbated volatility.

An already volatile market was further rattled when Iran fired missiles at oil tankers and the U.S. responded by destroying Iranian oil platforms. This ultimately sparked the “Black Monday” market crash of October 19, 1987, when the S&P 500 Index declined by more than 22% in a single day.3

The bottom of this bear market came just six and a half weeks after it began, and the recovery was swift and stable. Those who sold in panic and left the market missed out on a significant rally later on, compared with those who invested or rebalanced toward equities and boosted their returns. It serves as another reminder of the need for investors to keep a steady head during inevitable periods of geopolitical turbulence.

5. Extreme Monetary Policy

After a decade of sustained inflation, in early 1980 the Fed raised interest rates to nearly 20%,4 pushing the US economy into a recession.

Inflation, which had been elevated ever since the 1973 oil shock, had risen to an astounding 13.5% by 1980.5 The Fed increased interest rates aggressively over the course of six months, with the Fed funds rate eventually reaching 17.6% in April of that year.6 The market finally bottomed in August 1982 after steadily declining for approximately two years. But by November 1982, just three months after bottoming, the market reached new highs.

6. So now what?

So much for five previous bear markets. Today, we face equal or greater challenges. Stock markets have already seen the biggest sell-off in a generation. Even gold—that ultimate “go-to” asset for investors in troubled times—suffered in the face of a dramatic “dash for cash” over recent weeks. During 2020, central banks and policymakers stepped in with a coordinated and unprecedented response. Among many actions they took was to keep interest rates low, at 0–0.25%. It wasn’t until recently, in March 2022, that the Fed raised the fed funds rate by 25 basis points, to 0.25–0.50%.7

Although the pandemic continues to spread around the world, global economic recovery has been erratic. Where we go from here remains an open question. One thing, however, that previous bear markets have taught us, is that life goes on. In each of these five bear markets, the sell-off was ultimately followed by recovery (as we saw in 2021). As ever, a small dose of historical context goes a long way to informing our current predicament.

1 CNN Money report, March 6, 2009.

2 “A History of Bear Markets,” Investopedia; accessed March 2022.

3 “Remembering the worst day in Wall Street history,” CNN Money, March 2017.

4 “What led to the high interest rates of the 1980s?” PBS Newshour, May 29, 2009.

5 “Historical inflation rates, 1914–2022,” US Inflation; accessed March 2022.

6 “United States Fed Funds Rate, 1971–2001” Trading

7 “Fed raises interest rates by a quarter point,”, March 16, 2022.


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