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What is a Bear Market?

Definition: A bear market is a period of at least two months of declining stock prices that leads to a falling total stock market value. In this depressed market, the major indexes such as the S&P 500 and the Dow Jones Industrial Average decline by at least 15 percent.

What Does Bear Market Mean?

What is the definition of bear market? A bear market is the result of declining investor confidence. As investors do not trust the market, they massively sell their securities, thereby causing multiple losses in the major indexes. As the losses grow bigger, investor confidence declines further until the stock market crashes. A bear market usually follows an economic recession with high inflation that slows down economic growth further. The unemployment rate is high, and consumer spending is low as consumers do not have the disposable income to buy basic goods.

Letís look at an example.

Example

A prominent example of a bear market is the recession that followed the great Wall Street stock market crash of 1929. As investors were massively struggling to get out of the market, the market incurred huge losses. In their effort to avoid excessive losses, investors kept on selling their stocks, thereby causing a further decline in the market. The market collapsed on October 29, 1929, and was followed by a sustained depression in the economy, known as the Great Depression. In fact, the Dow Jones Industrial Average declined by 89% through 1932.

Another example is the bear market following the housing bubble of 2006. Real estate prices skyrocketed by more than 100% due to speculative borrowing. Tightening measures on the property market were loosened, and consumers could get any mortgage to buy a new house. Furthermore, more and more people were into the real estate investment spiral seeking to make a profit from purchasing rental properties and selling them after a while. These two factors increased the housing demand and the real estate prices.

Summary Definition

Define Bear Market: A bear market refers to a time period where investors are leery of investing causing the S&P and DJIA to fall 15% or more.

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