Bear Market

What Is A Bear Market? 

The term “Bear Market” refers to a condition in the financial market where stock prices continuously decline. 

Deeper Definition

A bear market occurs when the financial market experiences a fall for a sustained period. The term is often used in the stock market to describe a period where stock prices continuously decline. However, individual securities or commodities may also experience a bear market if prices fall over a sustained period.

In a financial market, prices generally rise and fall. For a financial market to be bear, prices need to drop for a long time. Usually, stock prices must decrease by at least 20% from their recent highs. However, that is only an arbitrary benchmark since there is no standard metric to qualify a bear market.

There are various reasons why bear markets occur. However, the underlying factor is fear and uncertainty on the part of investors. A financial market goes bear when investors refuse to invest more funds because they are uncertain that the market will experience an increase. Instead, they withdraw their existing investments, an action that causes the market to fall further and more investors to panic sell.

Generally, it is an indicator that a country’s economy is experiencing a downward trend. When unemployment rates rise or a decrease in disposable income, people tend to cash out their investments. On the other hand, when the economy is experiencing growth, increased employment, and disposable income, people tend to invest, creating a condition known as “Bull Market.” A bull market is the opposite of a bear market, and it is a situation where market prices experience sustained growth over a period.

Bear Market Example

A bear market occurs when the financial market experiences a decline for a sustained period. For instance, in February 2020, the stock market worldwide plunged into a sudden bear market in the wake of the Coronavirus pandemic.

Bear markets can last for several weeks, months, or years, during which there may be rallies. A bear market rally is a situation where stock prices rise temporarily before going lower. As expected, bear markets are a scary time for most investors since nobody enjoys watching the value of their portfolios go down.