What are bear markets and how does it affect me? - USA TODAY

Adam Shell and Josh Rivera USA TODAY

Published 7:51 PM EDT Mar 11, 2020

The stock market's 11-year party appears to have ended. 

The Standard & Poor's 500 index plunged again Wednesday, narrowly avoiding its first bear market since the financial crisis after the World Health Organization declared a global pandemic as the coronavirus rapidly spreads across the world.

The same could not be said for the Dow Jones industrial average, which fell nearly 1,465 points to close Wednesday at 23,553.22, officially in bear territory. It logged its largest decline since the financial crisis.

"This is the swiftest fall from grace that I’ve ever seen," says Megan Horneman, director of portfolio strategy at Maryland-based Verdence Capital Advisors. "We would have never forecast it would be the coronavirus that could take this market down.

What is a bear market? 

A bear market is defined as a drop of 20% or more from a prior closing high. With a current index of 2,741.38 the S&P 500 is dangerously close to hitting its 20% mark of 2,740.35 to officially join the Dow in bear territory. 

Investors use the S&P 500 index, a benchmark for mutual funds, to track the broader stock market. Wednesday's rout left it down nearly 20% – almost bear territory – from its record. The broad index shed 4.9%, leaving it off about 19.2% from its Feb. 19 high. The Nasdaq Composite shed 4.7%, also off just under 20% from its record last month.

Investors fear bear markets, especially after the S&P 500 fell nearly 57% during the last one in 2007-09. The average decline in bears since 1929 is roughly 40%, according to S&P Dow Jones Indices.

Though there are no perfect past market comparisons for the coronavirus, many Wall Street pros note that the economy and markets recovered from prior shocks that froze economic activity, such as the 9/11 terror attacks and health scares caused by SARS (2003), swine flu (2009) and Ebola (2014). In all three virus scares, stocks were higher six and 12 months after the outbreaks, according to data from First Trust Portfolios.

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