What is a bear market? A bear market is a directional decline in the stock market over an extended period of time in the primary trend. A downtrend is lower lows and lower highs.
A bear market is also a condition, it is a transition from high investor optimism to widespread investor fear and pessimism. As investors expect further price declines and losses, they remain pessimistic and “bearish.”
A bear market is driven by fear and pessimism, which can be measured by investor sentiment polls and indicators.
How do we determine if we’re in a bear market?
There can be many qualitative definitions of a bear market, one generally accepted quantitative measure is a price decline of 20% or more. A market crash is a dramatic decline in prices across a broad range of assets. Bear markets may include market crashes.
Another way to quantitatively measure and define a bear market is breadth, which is the degree individual stocks are participating in a decline. In a bear market, most stocks are in a downtrend.
For a list of stock market crashes and bear markets starting in 1623, click here.