What is a Bear Market
A bear market is a term that is used to describe a general reduction in the stock market over a period of time. The term bear market is a broad term that relates to a gradual decline in investor confidence, and can be used to refer to either a single security or to the stock market in general.
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Bear Market features
To contrast with a bull market, a bear market is a condition where the prices of securities have experienced a drop in value over a period of time. Due to widespread concern and negativity amongst stock market traders, the values continue their descent, and negativity towards the prices continues amongst traders. A bear market is therefore a transition from investor optimism to widespread investor pessimism.
For a security to enter into a bear market, it must experience around a 20% decline in value over a period of at least two months. In 1929, a bear market occurred after the Wall Street Crash, erasing 89% of the Dow Jones Industrial Average’s market capitalization, and marking the beginning of the Great Depression.
When a security enters a bear market it can be difficult for it to make sufficient capital on a trade. A bear market security is therefore not a good place for an investor to find an entry point and make a trade. Although a bear market can inevitably experience a turnaround to a bull market, it can occur again if the market environment or a specific security is consistently weak. The most recent examples of a bear market occurred in the United States, between October 2007 and March 2009. The term ‘Bear’ is also used to refer to a trader who believes that the prices will inevitably fall.
To contrast, a bull market is associated with increasing levels of investor confidence, which ultimately results in increased investing in anticipation of impending price increases.
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