What We Can Learn From Past Bear Markets

April 23, 2025

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The market volatility index (VIX) peaked at 52 on April 8 before easing toward 30, driven by the Trump administration’s policy announcements. Generally, when the VIX hovers above 30, the market experiences wide swings as investor fear heightens over increasing uncertainty. In this case, the uncertainty over trade policy is pushing most equities into bear market or at its cusp.

According to the US Securities and Exchange Commission (SEC), a bear market is a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.

However, not all bear markets are the same, writes Goldman Sachs Research’s Chief Global Equity Strategist Peter Oppenheimer and his team in their latest note. By recognizing the type of bear market we’re in, it could give clues on what the triggers are, how long it could last, and how soon the markets could recover.

The three types of bear market

The first quarter of the year saw sharp falls in some of the biggest technology names, causing a bigger drag on the US equity markets than on non-US markets. This reverses the cycle that has driven the US equity market to nearly 15 years of outperformance. Meanwhile, economic conditions relative to consensus also deteriorated.

The sharp slide in equities since the “liberation day” tariff announcement on April 2, has taken all equity markets down together as fears of recession have surged.

As most equities have entered or are approaching the bear market, Goldman Sachs Research analyzed the long-term history – using US data as a proxy – and find three types of bear markets, each with different triggers and distinct characteristics. Our strategists believe we are currently in an event-driven bear market.

1. Event-driven bear market

A one-off “shock” could trigger a bear market, but it doesn’t have to lead to a recession nor temporarily knocks the cycle off course. Goldman Sachs Research believes the sharp rise in tariffs announced on “liberation day” was the triggering event.

US bear markets and recoveries since the 1800s

Orange diamonds mark post-WW2 averages

_{Source: Goldman Sachs Research}

They note the average cyclical and event-driven bear markets generally fall around 30%, but they differ in terms of how long it will last and how long it will take to recover. Event-driven bear markets tend to last around eight months and takes about a year to recover.

The US started the year with strong economic prospects and low recession risks. However, the surprising size of the recently announced reciprocal tariffs raises recession risks and lowers GDP growth. Furthermore, “it could easily morph into a cyclical bear market given the growing recession risk,” our strategists warn.

2. Cyclical bear markets

Cyclical bear markets are the most common type with market drops typically averaging around 30%. Rising interest rates, impending recessions, and falls in corporate profits are typical triggers for a cyclical bear market, which is a function of the economic cycle.

Goldman Sachs Research notes that cyclical bear markets tend to last an average of two years and take around five years to fully rebound to their starting point.

3. Structural bear markets

Identifying the type of bear market can be difficult in real time. Most structural bear markets start out looking like cyclical bear markets but if it morphs into structural, its effects are by far the most severe.

On average, a structural bear market declines around 60%, and it could play out over three years or more, which then could take about a decade to fully recover. Structural imbalances and financial bubbles are the triggers for structural bear markets, which often are followed by a price shock such as deflation and a banking crisis.

Examples of structural bear markets include the collapse triggered by the 1929 stock market crash, the downturn in Japan through 1989 to 1990, and more recently, the Global Financial Crisis (GFC). Goldman Sachs Research points out that each exhibited similar conditions of broad-based asset bubbles, euphoria, private-sector leverage, and finally, a banking crisis.

Bear market rallies

Bear market rallies are quite common, given that any marginal change in variables can have amplified effects in the market. These short-lived rallies occurred during the collapse of the technology bubble in 2000-2002 and the GFC in 2008, where there was a pattern of rebounds before the market reached a trough.

Duration of bear market rallies

MSCI AC World, Since 1981. Orange bar indicates 2025 bear market.

_{As of 19 April 2025}

_{Source: Datastream, Goldman Sachs Research}

There have been around 20 global bear market rallies since the early 1980s, where on average, they lasted 44 days and the MSCI AC World index return is 10% to 15%.

Goldman Sachs Research notes that given the very sharp falls in investor sentiment, it would be typical for there to be a bounce in equity prices. It is also worth noting that most bear markets see a recovery within a year.

Conditions for a bear market recovery

There are several conditions that Goldman Sachs Research would expect to see before a bear market is considered to be in recovery – i.e., when there is a sustained rebound in equities:

Attractive valuations
Extreme positioning among investors
Policy support from the government or the Federal Reserve
Improved economic growth outlook

Our strategists do not think these conditions have been met. So far:

Valuations remain expensive.
The positioning among investors has not reached extremes.
The Fed has indicated that they are in no rush to cut interest rates.
Economic growth outlook hasn’t improved.

It’s important to note that identifying the type of bear market is easiest in retrospect but more complicated in real time, as policy changes can shift the direction of the economy and markets.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. This article is not a product of Goldman Sachs Global Investment Research. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.