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According to official definitions, we are now in a bear market. Share prices have fallen by 20 per cent from their recent peak - which was reached last year - and that is all it takes to turn the official signals from optimism to pessimism.
Most people probably still wonder what the fuss is about. True the credit crunch and the fears of recession make the headlines most days, and last week's warning from Marks & Spencer was a wake-up call of sorts, but the squeeze has yet fully to hit people's wallets. And it feels the same with the stock market - it is going through the motions of pessimism rather than fully believing it.
There are exceptions of course. House building shares have been devastated, falling 90 per cent or more. Property shares are down by a half and bank shares almost two thirds. Media companies and retail have suffered too in anticipation of the squeeze in consumer spending. For them the bear market started some time ago. But in the real economy, companies like Rolls Royce which still make things seem less troubled. For them the bear market is a problem for someone else.
This is often the pattern. Economies are made up of a huge range of activities and there are winners as well as losers even in the darkest times. That is what we see now, and what indeed we saw in previous bear markets. It is a good time to buy quality companies.
The most recent of these other bear markets, in 2001-2003, was characterised by the devastation in technology stocks - most of which had risen massively and many of which became worthless. But it was also characterised by neglected, old economy stocks gradually returning to favour as investors realised the internet was not going to put them out of business overnight. The market as a whole was falling, but they moved higher.
The one time this did not happen was 1987. But that was a different bear market because it lost a third of its value in a couple of days in what was the most spectacular crash since 1929. The good, the bad and the ugly all plunged together, but again once the carnage was over, buyers returned for quality. It took five years for the market to regain its peak but some shares were on the recovery road within three months.
Perhaps the most depressing bear market was in 1974 which, with the secondary banking crisis and oil price shocks, resembles the problems we face today. It was made worse by political uncertainty and a general feeling that the country was in decline. But even that did not last forever. Eventually people started buying again. In the stock market, they almost always do. Years when the index goes up far outweigh the years when it falls.
