What Is a Bear Market?

What Is a Bear Market?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A bear market refers to a financial market where prices are falling or expected to fall. This type of market is characterized by a prolonged period of price declines, usually by 20% or more from recent highs. Bear markets are often accompanied by a widespread pessimism and negative investor sentiment, causing stock prices to decline even further. Typically, bear markets occur during times of economic recession, when unemployment is high and inflation is low.

Related Questions

1. What causes a bear market?

A bear market is often caused by a downturn in the economy, for instance, a recession. It can also be brought on by negative economic data, natural disasters or international events that scare off investors. Additionally, changes in government leadership or policy may unsettle investors, leading to a bear market.

2. How long can a bear market last?

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There is no standard duration for a bear market, but historically they have ranged from a few weeks to several years. The length of a bear market can depend on a variety of factors, including the severity of the economic downturn and how quickly investor confidence can be restored.

3. What is the difference between a bear market and a bull market?

A bear market is typically characterized by falling prices and pessimistic sentiment among investors. A bull market, on the other hand, is characterized by a trend of rising prices and optimistic sentiment. These terms are most often used to refer to stock markets, but they can apply to anything that is traded, such as bonds, real estate, or commodities.

4. What’s a good strategy for investing in a bear market?

Investing in a bear market requires careful planning and a thoughtful strategy. Some investors may choose to take a defensive position by investing in stocks that are perceived to be less risky, such as those in utilities and consumer staples sectors. Another common strategy is to diversify one’s portfolio by including a mix of stocks, bonds, and other assets.

5. How can I protect my portfolio during a bear market?

There are several ways to protect your portfolio during a bear market. You might adjust your asset allocation to include more conservative investments, diversify your holdings, or add alternative investments that can perform well during market downturns. It’s also a good time to review your investing goals and risk tolerance.