Bear Market
A bear market is a prolonged decline in which a market index falls 20% or more from its recent high, usually amid widespread pessimism.
The name refers to a bear swiping its paws downward. Bear markets are often linked to recessions, rising interest rates, financial crises or the bursting of speculative bubbles, but they can also occur without an economic downturn.
Historically, US bear markets have been shorter than bull markets, lasting on average roughly a year, with typical declines in the 30% range, though the range is wide. Severe ones, such as 2000-2002 and 2007-2009, saw losses near or above 50% in the S&P 500. Sharp rallies, called bear-market rallies, often occur within them.
A bear market officially ends, by common convention, when prices rise 20% from the low, but this is only known in hindsight.
Example: if an index peaks at 5,000 and falls to 3,900, it is down 22% and in bear market territory. For long-term investors, bear markets can be painful but have historically been followed by recoveries; for those needing money soon, they highlight the importance of asset allocation.