Which Is Worse: a Recession or a Bear Market?

The S&P 500 entered a bear market on Monday morning, driven lower by Wall Street's fears about the economic fallout from President Donald Trump's tariff rollout. The tech-heavy Nasdaq had already officially entered bear market territory on Friday.

Despite Trump's urging to Americans to "hang tough" in a Truth Social post Saturday morning, stocks are continuing to tumble as finance experts warn that the American economy could tip into a recession — and possibly trigger a worldwide economic slowdown, to boot.

Even though there are still some positive signals in the economy — jobs data released Friday found that the labor market grew by 228,000 jobs in March, for instance — expectations of financial pain to come are ubiquitous.

“The stock market is declining in anticipation of fairly obvious negative consequences,” says Jed Ellerbroek, portfolio manager at Argent Capital Management. “Trump has implemented a lot of policies that are going to slow economic growth.” While the market plunge doesn't necessarily mean a recession is headed our way, “I'd say the probability has gone up a lot over the past couple of months,” he says.

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Even if Trump’s tariffs are implemented to a lesser scope or degree than the president presented them on Wednesday, some of the economic damage likely has already been done, says Keith Buchanan, senior portfolio manager at Globalt Investments.

“The market is pricing in uncertainty, and any uncertainty is going to cause disruption and lower prices across asset classes,” he says. “We know less about what tomorrow looks like… and that uncertainty made a perfect storm for a selloff.”

The American Association of Individual Investors' weekly survey found that the percentage of investors expressing bearish sentiment jumped by 10 percentage points in only a week, with roughly 62% of respondents in the most recent survey indicating that their six-month outlook is bearish — the most negative reading over the past year.

While both bear markets and recessions are bad news, there are some important distinctions between them to keep in mind as you consider how the fallout of Trump’s trade policy could impact your personal finances.

What is a bear market?

A bear market is generally defined as when investment prices fall at least 20% from a recent high. For instance, the Nasdaq on Friday closed at around 22% off its December peak.

Looking at the broad-based S&P 500, there have been 11 bear markets since 1942, with an average duration of 11 months and an average cumulative loss of about 32%. While that might sound like an enormous drop, it’s important to remember that the initial recovery years after bear markets end usually see outsized gains, which is why investment pros urge people to remain invested so they can take advantage of buying opportunities that will pay off once brighter economic conditions return.

“The stock market usually bottoms during the recessionary period and oftentimes explodes higher off that bottom” when Wall Street realizes the tide has turned, Ellerbroek says.

Because investment strategies are based on the expectations of future earnings, a bear market reflects an assumption that companies' sales and profits will shrink. “Since investors are anticipators, the stock market tends to respond to the possibility of a recession by an average of about six months,” says Sam Stovall, chief investment strategist at CFRA Research.

But there have been a number of bear markets that haven’t been followed by recessions, so investment experts advise against ascribing them too much predictive power. “The stock market has not been correct in assuming a recession each and every time,” Stovall says.

What is a recession?

A recession is generally defined as a period of at least six months in which quarterly gross domestic product, or GDP, figures show a shrinking economy rather than a growing one. The National Bureau of Economic Research, or NBER, is the only entity that can officially declare a recession, but this process generally takes place well into — or even after — the recession.

Since 1950, there have been 11 recessions, with an average length of 11 months. The longest recession was the Great Recession, which lasted from December 2007 to June 2009. Even that duration isn’t tremendously long when compared with a decades-long plan for retirement investing, but the aftereffects of recessions can linger long after the economy has shaken off the malaise and returned to growth. Corporate operations and consumer behavior retain the changes they underwent during the recession, which can inhibit economic recovery.

When recessions follow a bear market, they generally persist even after stocks have begun their climb back up from a trough.

Which is worse?

While neither bear markets nor recessions are any fun to live, work or invest through, economic experts say there’s definitely one that can be considered objectively worse.

"A recession is much worse than a bear market," says Mitchell Goldberg, president of ClientFirst Strategy. "It's one thing to see the value of your stocks go down — a stock account going down might be inconvenient and worrisome — but your greatest asset is your gainful employment, and a recession could cause you to lose that."

More broadly, the danger with recessions is that their aftereffects can linger long after the worst of the slump is over.

"A recession, from a human standpoint, has a much broader effect,” Buchanan says. “It has lasting — even sometimes, cultural — impacts." Even people who don't lose their jobs often change their behavior, cutting down on spending and seeking out ways to save money in anticipation of a possible job loss.

With consumer spending comprising as much as 70% of the economy by some estimates, worry and fear can have a real-world economic impact, according to Emily Bowersock Hill, CEO and founding partner of Bowersock Capital Partners. “While sentiment readings do not always translate into lower demand, this time it will,” she warned in a research note published Friday.

The same is true for businesses, Goldberg says. “Companies usually come out of recessions leaner and more efficient. That has an effect on anybody who gets a paycheck,” because companies might find they don’t need to hire back all the workers they laid off or might be able to create lower-level jobs that pay less.

Although it can be scary watching your 401(k) in free fall, Stovall urges retirement savers to keep the big picture in perspective. “You haven't lost anything unless you’ve sold,” he says — which is why you don’t want to cash out of the market and lock in those losses, he adds. “The first thing you should do is protect your portfolio from your emotions.”

It takes, on average, 18 months for the market to reach breakeven after a bearish selloff, but the signs of a turnaround usually aren't evident until later, in hindsight, Buchanan says. "The stock market tends to bottom when the recession looks at its darkest," he says. "Recession is not typically in the rearview mirror when the markets bottom. It seems like the worst is ahead."

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