Bear Market
Explanation: A bear market is a period of declining stock prices, typically by 20% or more from recent highs. It is characterized by widespread pessimism, negative investor sentiment, and a focus on selling rather than buying. Bear markets can be triggered by various factors, including economic recessions, financial crises, or major geopolitical events.
Example: During the financial crisis of 2008, the stock market experienced a bear market as major indices like the S&P 500 fell by more than 50% from their previous highs. This decline was driven by the collapse of the housing market and the subsequent banking crisis.
Reference Link: For more information on bear markets, visit Investopedia’s Bear Market.
FAQs:
- What causes a bear market?
- Factors include economic recessions, high unemployment, inflation, interest rate hikes, and geopolitical tensions.
- How long do bear markets typically last?
- Bear markets can last for several months to a few years, with the average duration being about 14 months.
- What is the difference between a bear market and a bull market?
- A bear market is characterized by falling prices and pessimism, while a bull market features rising prices and optimism.
- How can investors protect themselves during a bear market?
- Strategies include diversifying investments, focusing on defensive stocks, and holding cash or safe-haven assets like gold.
- Can investors profit during a bear market?
- Yes, through strategies like short selling, buying put options, and investing in inverse ETFs that gain value as the market declines.