The most common definition of a Bear Market is when there is an extended time period of a drop in investment prices. Generally, this includes a broad market drop of about 20% or more from its most recent high. Bear Markets can be reported for the overall market as a whole, such as the Dow Jones Industrial Average, while individual stocks can also hit Bear Markets on their own.
One example of a Bear Market reported recently was in The S&P 500 on June 13, 2022. At this point it was down more than 21% for the past year. This is a good example of what can happen for steep Bear Market plummets for individual or overall markets. With these dives right at about a 20% drop or just below, along with the note that this stock has dropped for the past year, it is an indication that it has the potential to continue to fall.
Another characteristic of Bear Markets is that the continued fall of these stocks can come from the investors’ pessimism and low confidence in the market. During a Bear Market, investors often ignore any reported good news of improvements in the market and continue to sell their stocks. While there may be some short periods of relief or improvement over these downfalls, the general trend over time in a Bear Market is downward. With the activity being that of selling, prices on the stocks continue to go down.
Pulling a stock or a market out of the Bear Market trend can take a lot of work. During periods of recession and other downturns, investors tend to carefully watch key economic signals in the news like hiring rates, wages, inflation, interest rates, and others to help determine what the economy is doing. Bear Markets tend to last shorter than Bull Markets (those on the upward push), with Bear Markets being just under a year most commonly. Luckily, a little bit of positive potential can get investors’ hopes on the rise and turn the markets back around.