Bear Market

Definition

The term bear market refers to an extended period of time during which there is a decline in the value of equities traded on a stock market.  While there is no strict definition, a decline of 20% or more in a market index would be considered a confirmation of a bear market.

Explanation

Generally, a decline of 20% or more in a market index, such as the S&P 500 or Dow Jones Industrial Average, over a period of at least 60 days would be classified as a bear market.  As investor fear of capital losses grow, the sell-off of common stocks continues, and a pessimistic outlook for the market becomes widespread.  Bear markets are typically the result of an economic recession.  Historically, bear markets average around one year in duration.

Short-term declines in a market index are classified as "corrections."  When a market experiences a correction, investors can oftentimes find many stocks selling for prices that represent a good value.

Related Terms

dead cat bounce, bull market, market correction, market trend, market sentiment