Bear Market

A bear market is a prolonged period during which stock prices decline significantly, typically defined as a drop of 20% or more from recent highs. Bear markets are characterized by widespread pessimism, falling investor confidence, and general economic weakness. The term comes from the way a bear attacks - swiping its paws downward. Bear markets can be triggered by various factors, including economic recessions, high unemployment, declining corporate profits, geopolitical events, or the bursting of asset bubbles. When investors become fearful about the economy or corporate earnings, they sell stocks, driving prices lower. This selling can become self-reinforcing as falling prices trigger more fear and additional selling. The average bear market lasts about 9 to 14 months, though some have been shorter and others longer. The 2007-2009 bear market lasted about 17 months and saw the S&P 500 decline by more than 50%. More recent bear markets, like the COVID-19 crash in 2020, have been shorter but equally dramatic in their intensity. During bear markets, investors often shift their portfolios toward safer investments like bonds, money market funds, or defensive stocks in sectors like utilities and consumer staples. Some investors may also hold more cash, waiting for better opportunities to buy stocks at lower prices. While bear markets can be painful for investors, they also present opportunities. Long-term investors can purchase quality stocks at discounted prices, setting themselves up for gains when the market eventually recovers. Throughout market history, every bear market has eventually been followed by a recovery and new bull market. Understanding bear markets helps investors prepare mentally and financially for inevitable market downturns. Having a plan in place before a bear market strikes can prevent emotional decision-making that often leads to selling at the worst possible time.