Financial Perspective – Should we be worried about the market downturn?
After performing strongly in 2023 and 2024, the stock markets have been turbulent since the start of this year. Here’s what history can tell us about this situation.
Booms and busts are a normal part of the stock market cycle. While investors are happy to welcome the upswings, the downturns can be a source of emotional turmoil and may even shake their confidence in the markets.
Here are a few facts that may help to make these cycles more comprehensible and keep them in perspective.
Three key concepts
Let’s start with some basic definitions.
A bull market is a period in which a market index climbs at least 20% above its previous low. This 20% benchmark is symbolic: the index may be rising for many months or years before officially entering bull market territory. Some analysts prefer to define this phase as a period of growth to a new high after a decline of at least 20%.
A bear market is the opposite: a period in which an index drops by at least 20% compared to its previous peak. This benchmark is also symbolic, and the index may be declining steadily long before it officially becomes a bear market.
A third, equally important, concept is that of a stock market correction. This refers to a somewhat smaller decline in the stock market, usually at least 10%. If the correction eventually reaches 20%, it becomes a bear market.
Advantage: bull markets
How often do bull and bear markets occur? Between 1957 and 2022, the Canadian stock market experienced 10 bull markets and 10 bear markets…