Reviewed by Aug 26, 2020| Updated on
What Is a Bear Market?
A bear market is a situation in which stock prices fall from recent highs by 20% or more, amid widespread pessimism and negative investor sentiment.
Bear markets are typically associated with a decrease in an overall market or index such as the S&P 500, but individual stocks or assets can be deemed to be on a bear market if they undergo a 20% or more fall over a sustained period of time -typically two months or more.
Secular and Cyclical Bear Markets
Bear markets can last for several years or just a few weeks. A secular bear market can last from 10 to 20 years anywhere and is characterised on a sustained basis by below-average returns.
During secular bear markets, spikes can occur where stocks or indices rally for a period of time, but the gains are not sustained, and prices return to lower levels. A cyclical bear market could last from a couple of weeks to several years anywhere.
The Naming of Bear
The concept of the bear market gets its name from the way a bear fights its prey—swiping its paws downwards. That is why stocks are called bear markets, with falling stock prices. The bull market is named after the way the bull strikes by thrusting its horns into the air just as the bear market does.
What Causes a Bear Market?
A bear market's triggers may vary but a poor, declining, or stagnant economy would generally bring a bear market with it. Generally, the signs of a poor or declining economy are low wages, low disposable income, high productivity and a decline in earnings. Additionally, any government intervention in the economy can also cause a bear market.