In this article, you will learn what does bear market mean. As an investor, it's important to understand financial terms and trends — especially when they might affect your portfolio. The term “bear market” is used all the time in the world of investing, often associated with a down economy or plummeting stock prices.
What Does Bear Market Mean?
A bear market is a market that is in a prolonged period of declines in security prices. Typically, a market is considered a bear when stock prices fall 20% or more from their 52-week high. An individual security may experience a bear market, though bear markets are often measured by an index, like the S&P 500 or Dow Jones Industrial Average. Bonds (like US Treasury bonds), currencies, precious metals, and commodities may also experience bear markets. overall portfolio risk when it comes to industry or security-specific bear markets.
Secular bear markets, which last for years or even decades, will likely see short periods of bull markets (aka a bear market rally), though the long-term trend is downward. Bear markets can also be cyclical and last for several weeks or months . Between 1900 and 2008. The stock market experienced 32 bear markets, happening once every three years and lasting an average of 367 days each.
What Causes a Bear Market?
Several factors contribute to bear markets, including investor behavior, as well as business and consumer confidence. Typically, bear markets follow a peak in the business cycle, when stock prices and investor sentiment (or overall attitude toward the market) is high. After this peak, investors begin to take profits and drop out of the market, which causes stock prices to fall.
As securities lose value, investors are likely to trade less and companies might see fewer profits. This decline leads to more negative investor sentiment — and less investing, and, you guessed it, even lower stock prices. Eventually, as the decline in prices begins to slow, investors will start to re-enter the market. As investor confidence and stock prices begin to rise again, the bear will typically give way to a bull market.
Keep in mind, bear markets are not corrections. A correction is a short-term trend (usually an average of three to four months) of lowered stock prices. An individual security or index may be in a correction if its price declines 10% or more from its most recent peak. While a market correction may be detrimental to day traders or short-term investors, it can also offer a point of entry to the market and provide opportunities to buy high-value stocks.
Bottom Line
Fortunately, no bear market has lasted forever, and in the long run, the market has tended to rise like a bull with its horns swinging upward. This article is about what does bear market mean.
