Bear Market Breakdown: What’s Driving the Decline — and What Comes Next

Apr 15, 2025 | 5 min read

The Top Line Summary

• Not all bear markets are alike: structural, cyclical, and event-driven bear markets have distinct causes, depths, and recovery paths.

• We may be experiencing an event-driven downturn triggered by tariffs, but whether this evolves into a broader bear market remains to be seen.

• Bear markets often feature short-term rallies, but lasting recovery typically requires a mix of cheap valuations, policy support, and macro stabilization.

Bear Market Breakdown: What’s Driving the Decline — and What Comes Next

Over the past two months, global markets have been gripped by uncertainty. The spark? "Liberation Day"—a sudden, sweeping tariff policy shift that shocked investors, erased trillions in market value, and triggered what appears to be an event-driven bear market.

While markets have experienced numerous bear phases historically, not all bear markets are created equal. Goldman Sachs’ latest research breaks them down into three categories:

1. Structural – triggered by deep imbalances like financial bubbles and banking crises. These tend to be the longest and most painful, often taking a decade to recover.

2. Cyclical – linked to the natural rhythms of the economic cycle, usually due to rising rates or falling profits.

3. Event-Driven – sparked by sudden shocks like wars, oil spikes, or—in our current case—tariffs. These are typically shorter and shallower.

What complicates things is that bear markets can evolve. Event-driven downturns can morph into cyclical ones if macroeconomic stress intensifies. That’s exactly the risk now.

How Bad Could It Get?

Historically, both cyclical and event-driven bear markets have seen average declines of around 30%. The key difference lies in the timeline. Cyclical bear markets tend to stretch out over two years and take five years to fully rebound. Event-driven ones, by contrast, often resolve in under a year.

Exhibit 1: US bear markets and recoveries since the 1800s (orange diamonds mark post-WWII averages)

Source: Goldman Sachs Global Investment Research

The S&P 500 was down roughly 21.4% from its peak to its lowest point on April 7 following the April 3 tariff announcement. Since then, it has rebounded by about 12.1% as of April 15, trimming the net drawdown to around 12%. Whether this marks the start of a broader recovery or a temporary bounce remains uncertain. Global equities have followed a similar path: MSCI’s All Country World Index (ACWI) dropped over 10% early in the month and has since regained some ground as sentiment improved.

Though some pockets, like German equities and Chinese tech, had initially shown resilience, those gains have since reversed amid mounting recession fears and capital flight from risk assets.

What Might Turn It Around?

History shows that bear markets don’t end just because prices look cheap. A lasting rebound usually needs:

• Valuation resets – U.S. equities still trade at elevated multiples. The S&P 500 forward P/E stands near 19x, well above post-GFC troughs.

Exhibit 2: S&P 500 forward P/E ratio

Source: FactSet

• Extremely negative positioning – The Goldman Sachs Bull/Bear Indicator is still elevated at 70%, signaling more downside risk.

Exhibit 3: Goldman Sachs' Bull/Bear Market Indicator

Source: Shiller, Haver Analytics, Datastream, Goldman Sachs Global Investment Research

• Policy response – The Fed is signaling caution. While rate cuts are expected (three 25bps cuts starting in June, according to GS), the pace may be too slow to stem market declines in the short run.

• Signs of macro stabilization – Growth momentum remains soft, and the near-term earnings outlook is weak. Until there’s improvement, markets are likely to stay choppy.

In the meantime, bear market rallies—short-lived surges within broader declines—are not uncommon. Historically, these rallies average about 14% over 44 days, with cyclicals often outperforming defensives.

Exhibit 4: Duration and performance of bear market rallies (MSCI AC World since 1981, orange bar indicates 2022 bear market)

Source: Datastream, Goldman Sachs Global Investment Research

Longer-Term Considerations

Whether or not the current downturn ultimately qualifies as a bear market, the underlying macro and structural trends are worth watching. Even beyond the immediate volatility, there are broader shifts that could weigh on long-term equity returns:

• Less globalization and rising trade barriers

• Higher government debt and defense spending

• Elevated cost of capital

• Margin pressures from higher labor and input costs

All of these suggest that the days of 15–20% annual equity gains may be behind us. Investors will need to be more strategic.

The Bottom Line

While it’s too early to say definitively whether we’re in a bear market, recent volatility, valuation resets, and macro headwinds suggest we’re at an inflection point. Much depends on how growth data evolves and whether policy support materializes.

Investor sentiment remains fragile, and pockets of the market still appear stretched on valuation. But history reminds us that some of the best long-term returns are captured by those who stay engaged—strategically and selectively—during uncertain times.

For long-term investors, this is a time to stay vigilant—not fearful. Periods of dislocation often present opportunities to reassess positioning, sharpen risk management, and prepare for the next phase of the market cycle.

What Should You Do?

At Israilov Financial, we help our clients make smart decisions in times of uncertainty. Now more than ever, it’s crucial to revisit your risk tolerance, check your exposure to overvalued sectors, and prepare a roadmap for the next stage of the cycle.

Stay diversified. Focus on quality. Keep a long-term view. Volatile markets are often a test of discipline—not just strategy. If you're unsure whether your current plan still makes sense, this is the time to reassess it with a professional.

Whether that means tax-loss harvesting, rotating into higher-quality assets, or simply staying the course, we’re here to guide you through it with clarity and conviction.

Reach out to us to review your portfolio—before the market makes the decision for you.

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IMPORTANT DISCLAIMERS

Past performance is no guarantee of future returns

The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.

This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities.

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The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Israilov Financial LLC cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Israilov Financial LLC does not provide tax or legal advice, and nothing contained in these materials should be taken as such.

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