Bear Market

What is a Bear Market?

Definition

A bear market is a situation when there is a 20% (or more) fall in the prices of securities from a recent high over a period of two months or more. A bear market can also be said to be when there is an overall fall in the stock market or indexes like the S &P 500 or Dow Jones Industrial Average. The opposite of a bear market is the bull market where there is a sustained increase in the prices of securities.

Bear Market Timeline

There are two major categories of the bear market which indicate the amount of time a bear market can last. They are; the secular bear market and the cyclical bear market.   

The secular bear market happens when the stock market enters bear territory and remains there for ten to twenty years, sustaining below-average returns within those years. A few cases of the stock market or index rallies surface and gains made, however, they are short-lived and cannot be sustained, causing the prices to relapse to lower levels.

On the other hand, a cyclical bear market is one that is sustained over a period of eight weeks to a few years ahead. This is the type of bear market that is mostly experienced in the US stock market.

The last prolonged bear market the US stock market experienced lasted for 17 months, from 2007 to 2009 during the last financial crisis; at the time, the S & P 500 fell by 50%. In 2018, the US stock market once again entered bear territory as there was a fall in its major market indexes. This was short-lived as the market soon went back into the bull territory.