What is a Bear Market?

The period when investors shed off their shares to avoid losses in anticipation of a falling market. Usually occurs with high investor fear and pessimism.

When a market goes through an extended period of price decline, this is called a bear market. Specifically, when the price of securities fall well below 20% and there is market pessimism. Bear markets are related to months-long downturns in financial indices like the Dow Jones, financial market, individual securities, or commodities but generally excludes consumer prices. In addition, bear markets can also be coupled with general recessions, but are not necessarily caused by them.

Bear markets are caused when consumer, business, or investor confidence is lost. As investor confidence declines that creates a decrease in demand, which then causes prices to fall. A Bear market can be triggered when there is a major plummet in the stock market, which creates consumer and investor panic. This is considered a part of the normal business cycle. A business cycle is the natural rise and fall of the economy throughout time. Looking at a business cycle through time is useful for investors and consumers to analyze the economy. Specifically, it is helpful in determining which financial decisions best serve the investor.

There are different types of Bear markets:

  • Bear Market Rally
  • Secular Bear Market
  • Stock Bear Market
  • Bond Bear Market

While no one has been able to accurately predict when a bear market will occur, one indictor is when the Federal Reserve starts to increase interest rates after there has been an extended period of lowering them. An investor should look for stable assets in order to diversify their portfolio and mitigate risk in bear markets. Assets such as precious metals historically perform better in bear markets when stock prices and interest rates go down.

What people ask…

What is a bull and bear market?
What is considered bear market?
What causes a bear market?
How long will the bear market last?

See Also…

Asset, Commodity, Share, Bull Market, Market Swoon

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