Bear Market
Definition
A financial market condition where prices fall 20% or more from recent highs, accompanied by widespread pessimism, negative sentiment, and declining investor confidence.
A bear market is officially recognized when a major index falls 20% or more from its recent peak. Bear markets are driven by economic recessions, rising interest rates, geopolitical crises, or the unwinding of speculative excesses. They represent a fundamental shift in market psychology from greed to fear.
Since 1950, the S&P 500 has experienced roughly 10 bear markets. The average bear market has lasted about 14 months with an average decline of 36%. The worst was the 2007-2009 financial crisis (-57%), while the shortest was the 2020 COVID crash (33 days from peak to trough).
Crypto bear markets (called "crypto winters") are more severe — Bitcoin has experienced multiple 80%+ drawdowns. These extended periods of declining prices, project failures, and evaporating interest can last 1-2 years and wipe out many projects that launched during the preceding bull market.
The most important principle during a bear market is to avoid panic selling. Historically, the worst thing an investor can do is sell at the bottom and miss the recovery. The best days in the stock market often occur during bear markets, and missing just the 10 best days over a 20-year period can halve your total return.
Bear markets create opportunities for long-term investors. Dollar-cost averaging during a bear market means buying assets at lower prices, which can significantly improve long-term returns. Tax-loss harvesting opportunities are abundant, and quality companies trading at discounted valuations can become excellent additions to a portfolio.
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Frequently Asked Questions
Should I sell everything in a bear market?
Almost never. Selling during a bear market locks in losses and risks missing the recovery. Historically, markets have recovered from every bear market. If your investment timeline is 5+ years, staying invested is usually the right move. Review your allocation, but avoid emotional selling.
How do I know when a bear market is over?
You can't know in real time — bear markets are only identified in hindsight. By the time it's clear the bear market has ended, prices have often already recovered significantly. This is why staying invested through the entire cycle, rather than trying to time the bottom, is recommended.