What is a "bear market"?

A bear market refers to a financial market condition in which the prices of securities are falling or are expected to fall. This term is commonly associated with a decline of 20% or more in stock prices, often over a sustained period. Investors typically exhibit pessimism during bear markets, which can lead to further price declines as sentiment drags down spending and investment activity.

In a bear market, economic indicators may also reflect a slowdown. Companies might report falling profits, and employment can become stagnant as investors tend to lock in losses instead of deploying new capital into the market. The decline in prices can trigger widespread fear, leading to heightened volatility as market participants react to negative news and trends.

Understanding this concept is crucial for investors and financial advisors, as it impacts investment strategies, asset allocation, and risk management. The distinction between market conditions like bear and bull markets (characterized by rising prices) is essential for making informed decisions regarding investments.