Bear market

A bear market is the opposite of a bull market: prices fall over a sustained period and investor sentiment turns gloomy. The common rule of thumb, used by financial media and many analysts, is a fall of at least 20% from the most recent high in a broad index such as the S&P 500. Bear markets are often, though not always, linked to recessions, financial crises or sharp rises in interest rates. They can be short and violent or drag on for more than a year, and they often include strong temporary rallies that turn out to be false dawns.

Bear markets matter because losses need proportionally larger gains to recover: a 50% fall requires a 100% rise to get back to where you started. For ordinary investors the biggest danger is often behavioural rather than financial, such as selling near the bottom and missing the recovery. Falls hurt most for people who need to sell soon, for instance at the start of retirement, which is why time horizon and holding enough cash or bonds for near-term needs matter. For a long-term investor still adding money, lower prices mean each contribution buys more shares.