Everything Investors Should Know About the Bear Market

The months-long decline for the S&P 500 index has pushed stocks so far from their all-time highs that the markets are now officially considered a bear market.

As of Monday afternoon, the S&P 500 index is down nearly 21% since the start of 2022, with companies like Amazon and Google parent Alphabet, down 39% and 27% respectively, are leading the way. Elon Musk's Tesla has also lost 45% of its market value since January - lost more than $500 billion in market value. With inflation and global uncertainty, the problem was exacerbated as experts predicted that a recession could be imminent. Here's what to know about bear markets and what to do when you find yourself in a bear market.

What exactly is a bear market?

Simply put, a bear market is the term used to describe the last time stock markets fell 20% or more from their all-time high. In this case, the S&P 500 index closed at 3,749.91 on Monday, hitting its previous high of 4,818.62. According to CNBC, there have been 14 bear markets that have driven the S&P down an average of 30% since World War II. Laura Veldkamp, a professor of finance and economics at Columbia University, says every bear market is unique, and the current bear market has a number of reasons.

Wherever there’s a lot of guessing and a lot of uncertainty, that means people’s beliefs can move around a lot. And with those beliefs go stock prices.

Laura Veldkamp - Professor at the University of Colombia

Two of these reasons, Veldkamp says, are raising interest rates to combat runaway inflation and uncertainty about the pandemic fueling the stock plunge as investors try to understand the long-term repercussions of Covid-19 on the global economy. “The truth is, no one knows what the long-term consequences [of shutting down parts of the economy for a long time] will be, because we haven't had such experience before,” he tells CNBC Make It. “Wherever there’s a lot of guessing and a lot of uncertainty, that means people’s beliefs can move around a lot. And with those beliefs go stock prices.”