Traders glossary

Bear Market

A bear market is a condition in which the prices of securities or indexes are falling, and investors are pessimistic about the market's future performance. A decline of 20 percent or more from a recent high is typically used to define a bear market, although the term can also refer to a general downward trend that lasts for an extended period of time. In contrast, a bull market is characterized by rising prices and optimism about the market's future direction.

During a bear (opposite of bull) market, investors may sell their stocks in anticipation of further declines, which can create a self-reinforcing cycle of selling and further declines. It can be a challenging time for investors, but it's important to remember that bear markets are a normal part of the healthy market cycle, and the can also present opportunities for long-term investors to buy stocks at lower prices.

There have been several bear markets in the US throughout history. Here are some of the most notable ones:

• The Great Depression (1929-1932): This bear market saw the stock market lose nearly 90% of its value over a three-year period.
• Black Monday (1987): On October 19, 1987, the stock market crashed, with the Dow Jones Industrial Average falling by over 22% in a single day
• Dot-com bubble (2000-2002): This bear market was caused by the collapse of the technology sector, which had become overvalued in the late 1990s. The NASDAQ Composite Index fell by over 75% from its peak.
• Global Financial Crisis (2007-2009): This bear market was caused by the subprime mortgage crisis and saw the stock market lose over 50% of its value.
• COVID-19 pandemic (2020): The COVID-19 pandemic caused a sudden and severe bear market in early 2020, with the S&P 500 falling by over 30% from its peak in just a few weeks.

It's worth noting that bear markets are a natural part of the market cycle and can occur for a variety of reasons, including economic recessions, geopolitical events, and market bubbles. However, historically, the stock market has always recovered from bear markets over the long term.