Bear Market
A bear market is a prolonged decline in asset prices — commonly defined as a 20% or greater fall from a recent peak, sustained for at least two months. Bear markets are associated with recessions, declining corporate earnings, or systemic financial stress.
The term originates from the way a bear attacks — swiping its paws downward. Bear markets average 9–18 months and produce declines of 30–40%. They occur roughly every 3–5 years. Notable bear markets include 2000–2002 (dot-com bust), 2007–2009 (financial crisis), and early 2020 (COVID-19).
Bear markets are painful in the moment but create the best buying opportunities for long-term investors. Stocks purchased at bear market prices historically generate above-average returns over the subsequent 5–10 years.
The greatest risk in a bear market is selling. Investors who lock in losses by selling at the bottom and then miss the subsequent recovery end up permanently worse off than those who stayed invested. Time in the market consistently beats timing the market.
Related terms
- Bull Market
- A bull market is a prolonged period of rising asset prices, typically defined as a 20% or greater rise from a recent low. Bull markets are driven by economic expansion, rising corporate earnings, and investor optimism.
- Volatility
- Volatility measures how much an investment's price fluctuates over time. High volatility means large, unpredictable price swings; low volatility means stable prices. Standard deviation is the most common volatility measure; the VIX index measures expected S&P 500 volatility.
- Dollar-Cost Averaging (DCA)
- Dollar-cost averaging is an investment strategy where you invest a fixed dollar amount at regular intervals, regardless of price. It reduces the risk of investing a large sum at the wrong time.
- Portfolio Rebalancing
- Rebalancing is the process of realigning the weights of portfolio holdings back to a target asset allocation — selling assets that have grown above target and buying those that have fallen below.