Bear Market

A bear market is defined as a financial market in which prices are falling or are expected to decline.

This designation is most commonly used in the stock market, though can also be applied to other markets as well, including real estate, foreign exchange, commodities, etc.

A bear market differs from periodic declines in assets by virtue of its duration, not frequency.

For example, a bear market will typically see extended periods during which large numbers of stock share prices are falling over months, or possibly even years.

Bear Markets Explained

Like any asset, movements are driven by speculation and by extension levels of optimism in markets.

In the case of bear markets, investor confidence is weak and a driver of assets in a downward direction.

Of course, there are multiple factors at work with any sustained or directional push of asset prices.

This influences speculation, psychological effects, and other external stimuli.

Oftentimes, bear markets do not have a clear start or end point, nor do they use any specific metrics in their analysis or identification.

Rather, the case of the stock market can help define a bear market. For example, if stock prices fall by 20%, typically after a rise of 20% and before a second 20% rise, then it can be surmised that a bear market is in effect.

Moreover, bear markets are notoriously difficult to forecast, though there are also several different factors that exist that can help usher a bear market as well.

Bear markets commonly take place when the economy is shrinking or during periods of weakness, turmoil, or uncertainty.

This is supported by weak gross domestic product (GDP) readings and a sustained rise in unemployment or declines in corporate profits.

Investor confidence is also a notable determinant, which tends to have a sustained fall during a bear market period.