Bear market
Family VII · Market & styles
Not to be confused with bear trap.
Bear market is a term used to describe a prolonged period of falling prices in a financial market, typically defined by a decline of at least 20% from a recent high. It is the opposite of a bull market, which denotes a period of rising prices. Bear markets can affect entire stock markets, specific sectors, or individual securities, and they often coincide with economic recessions.
Definition and thresholds
The most common threshold for a bear market is a 20% decline from a recent peak in a broad market index such as the S&P 500 or the FTSE 100. However, the exact percentage and the time frame used to measure it can vary by index provider, analyst, or regulator. Some definitions require the decline to persist for at least two months, while others consider any drop of 20% or more as sufficient. A bear market is often confirmed only after the fact, once prices have fallen and then begun to recover.
Worked example
Suppose a broad market index reaches a peak of 4,000 points. It then falls to 3,200 points, a decline of 20% from the peak. This would meet the common threshold for a bear market.
Characteristics and duration
Bear markets are characterised by widespread pessimism, falling corporate earnings, and often rising unemployment. They can last for months or years, and the recovery to the previous peak may take even longer. The duration and severity of a bear market vary widely and are influenced by economic cycles, monetary policy, and investor psychology. Not all market declines of 20% or more are labelled bear markets; some analysts use different criteria, such as a 20% decline in a specific index or a decline that lasts for a certain number of trading days.
Often confused with
- bear trap
- A bear trap is a chart pattern in which price breaks below a support level, drawing in short sellers, then reverses back above that level, forcing those sellers to cover at a loss.