The Dow closed down over 1,400 points Wednesday, ending its historic bull market run and entering bear market territory as the coronavirus was officially named a pandemic by the World Health Organization. Here's what you need to know.
A bear market marks a 20% decline in stocks from recent highs and an overall pessimistic feeling on Wall Street. They typically last around 13 months, according to a CNBC analysis.
The U.S. stock market had been in a bull market — or consistently increasing — since March 2009, one of the longest on record. In that time, it's experienced a number of corrections, or declines of 10% from record highs, before rebounding.
While no one knows what will happen, it's possible that the coronavirus's global scale could keep stocks down for a long period of time. Bear markets can go hand-in-hand with recessions, though Federal Reserve Chair Jerome Powell said at the end of February that while the coronavirus poses a risk to the U.S.'s economic activity, he believes the "fundamentals of the U.S. economy remain strong."
The past week has seen the stock market bouncing up and down a thousand-plus points, leaving investors "feeling like we are all Chicken Little," Michael Macke, founder and president of Petros Advisory Services, tells CNBC Make It in an email, referring to the story about the chicken who kept incorrectly claiming the sky was falling. "Only after the fact will we know for sure if we have a bear market, or even a recession."
A bear market shouldn't cause you to panic
Timing the market is a fool's errand. But, financial experts say dips like this actually represent a buying opportunity for those investing for retirement. This is particularly true for younger investors, who may have only contributed to retirement accounts during the past 11 years, when the market was continuously rising and prices were consistently hitting new all-time highs. If you don't need the money in the next five years, leave it invested.
"If 200 years of stock market history is any indicator, it is likely that investment markets will rebound from negative news and price declines," said David Ragona, director of retirement operations at 401(k) provider Human Interest, in a statement. "Realize that short term events and market turmoil are with us to stay, and remember to keep any money you need in the next five years out of the stock markets."
A bear market is also a good time for young investors to check that they are comfortable with their current investment strategy, Macke says. If you haven't experienced a prolonged decline in the stock market, you might not have a good sense of your appetite for risk.
"Times like this serve as a great reminder that our portfolios need to be reviewed not just for what investments you own, but to make sure that they are in alignment with your goals and your comfort with risks," he says.
That said, selling off your stocks now and moving into "safer" investments like bonds or cash, or making any sort of investing decision based off of a day or week's headlines, is a bad idea. History shows that if you can ride out the bear markets, stocks should gain in value over the long term.
"Investing should never be about a moment in time; it should always be about a process over time," Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNBC Make It.
If you still have years or decades until retirement, continue making regular contributions to your 401(k) or IRA. And if you don't have a long-term financial plan, crafting one — and sticking to it — is the best thing you can do for your mental health and your financial well-being, especially in the event of a bear market or potential recession, Macke says.
That goes beyond investing: You should also take stock of financial basics like your liquid savings and budget. "Make sure you have an emergency fund that you can access if needed," he says. "It might not make much, but the comfort of knowing it is available will be worth it."
Check out: The best credit cards of 2020 could earn you over $1,000 in 5 years
Don't miss: Here's what millennials need to know about market corrections