A bear market refers to a period in financial markets characterized by a prolonged decline in asset prices, typically by 20% or more from recent highs. This downturn can affect various asset classes, including stocks, bonds, and commodities. Bear markets often arise due to economic downturns, declining corporate profits, or adverse news events, creating a negative sentiment among investors.
During a bear market, investor confidence diminishes, leading to increased selling of assets and reduced buying activity. This cycle can perpetuate further price declines and create a challenging environment for investors seeking to realize profits. The term “bear market” contrasts with a “bull market,” where asset prices are on the rise.
Understanding bear markets is crucial for investors and analysts as they shape investment strategies and risk management approaches. Investors may choose to adjust their portfolios by reducing exposure to risky assets or seeking safer investments during such periods. Recognizing the signs of a bear market can aid in making informed financial decisions and navigating market volatility effectively.
