All That Matters: The Next Bear Market

In this episode of All That Matters, Mike and Ross step back from prediction and focus on preparation: what bear markets actually look like, what tends to bring them on, and most importantly, what investors can do today to stay on track when markets turn.

What to Know About Bear Markets

Ross: Welcome back to All That Matters. As we sit here in a strong bull market, with stocks up significantly and investors generally feeling good, it’s easy to forget what we know for a fact: a bear market, a downturn, a recession will come. We may not know when or what will cause it, but we know it’s coming. The question is: what should we be doing now to prepare for what’s ahead? A good place to start is with context: how often bear markets happen, how deep they go, and how long recovery typically takes.

Mike: Before we get into the numbers, let’s set some ground rules. Nobody, no matter where they work, how many credentials they have, or how many emails and newsletters they send, knows exactly what the future holds. Nobody. With that in mind, let’s talk about what we do know.

A bear market is typically defined as about a 20% decline in the stock market. On average, it takes around 330 days to fall to that level. From there, recovery back to prior peaks takes a little over a year and a half. And we’ve lived this recently. In 2022, the market started to decline in January, bottomed in October and then recovered in about a year and a half. It was almost identical to the historical average.

Now, here’s the important part: the stats are the stats, but we know that how you feel during a bear market often matters more. No one enjoys losing money. But if we’ve learned anything, it’s that the investors who succeed are the ones who can stay invested through bear markets. That’s the difference. Holding stocks in a bull market is practice. Holding them in a bear market, that’s the Super Bowl.

Ross: And when you think about it, how you felt during the last bear market is probably the best predictor of how you’ll feel in the next one. The 2022 bear market was slow, drawn out, and frustrating. Compare that to the COVID bear market, which was sharp and fast with a dramatic, almost “waterfall” decline. Very different emotional experiences. We’ve also had near-bear moments, like the 2025 tariff-driven sell-off. Again, different feel, different pace. And when you look across history, there are a wide range of catalysts.

What Will Cause the Next Bear Market?

Mike: There’s a concept we used in trading: looking back three years to see how much the market has gained. If it’s up 100% or more, we’d call that a “bubble.” Right now, the S&P 500 is up about 81% over the past three years. That’s not a bubble by that definition, but it’s certainly strong. So what ends it? This market has been driven largely by AI, technology, and heavy spending. That’s the engine. At some point, that spending slows. And when it does, it ripples through the economy. Less spending leads to job losses, and that ultimately leads to a market downturn.

Unfortunately, we don’t know what will cause that slowdown. Something will happen, somewhere in the world, that increases uncertainty. That’s when spending pulls back. Every cycle works this way. Spending rises, peaks, and eventually falls. When it does, markets follow. We know that part will happen. What we don’t know is what triggers it or when it starts.

Ross: If you look at past bear markets, the range of causes is surprisingly wide. One common thread, though, is the role of interest rates and leverage. When the Fed raises rates, it puts pressure on the most leveraged parts of the economy. That pressure can spiral, leading to less spending, fewer jobs, and eventually a downturn. Even in 1998, during a strong tech bull market, a financial crisis in Russia triggered a chain reaction that impacted U.S. markets.

So yes, today it’s an AI-driven bull market, but that doesn’t mean the next bear market will have a simple or obvious cause. Which brings us to the most important question: if we don’t know what’s coming, what can we actually do about it?

What Can You Do Today?

Mike: Our advice is to walk into your Baird Financial Advisor’s office, or give them a call, and ask a simple question: “What does my plan look like if the market falls 20%, 30%, or 40% over the next few years?" They can walk you through how your plan is structured and how your cash flows would work in that scenario. The key to staying invested during a bear market is an ongoing, evolving, adjustment process over time. Every successful investor in history has done one thing consistently: they’ve separated their short-term needs from their long-term investments. They have assets to cover near-term expenses so they don’t have to touch long-term investments when markets are down. That’s the formula. That’s what allows you to stay invested.

Ross: The key to compounding is not interrupting it unnecessarily. If the market is down and you’re forced to sell long-term investments just to cover short-term needs, that’s where things can break down. So what can you do? Maintain liquidity, stay diversified, be mindful of concentration risk—especially in areas like tech and AI, and importantly, don’t chase performance in a bull market. The stocks that rise the fastest often fall the hardest. If you stretch beyond your risk tolerance during good times, it can make downturns much more painful. Keep your focus on good behavior and preparation. Your Baird Financial Advisor team is always here in the meantime.

This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.