A bear market is a term that describes a sustained period of time where stocks, securities, or assets continue to decrease in value. A bear market is usually caused by economic decline, consumer pessimism, and negative investor sentiment. A bear market is the opposite of a bull market, where prices are increasing due to economic growth, consumer optimism, and positive investor sentiment.

Some characteristics of a bear market are:

• A decline of 20% or more in a major stock market index, such as the Dow Jones Industrial Average or the S&P 500, from its recent high³
• A duration of at least two months, typically lasting for several months or longer
• A weak or slowing economy, indicated by low employment, low disposable income, low productivity, and low business profits
• A poor market sentiment, indicated by fear, uncertainty, and doubt among investors and consumers

Some examples of bear markets are:

• The Great Depression: From 1929 to 1932, the U.S. stock market lost about 86% of its value due to the collapse of the economy and the banking system
• The Dot-com Crash: From 2000 to 2002, the U.S. stock market lost about 50% of its value due to the bursting of the internet bubble and the recession that followed
• The Global Financial Crisis: From 2007 to 2009, the U.S. stock market lost about 57% of its value due to the subprime mortgage crisis and the global credit crunch that triggered a severe recession 2

Some strategies for investing in a bear market are:

• Short selling: This is a technique where investors borrow stocks from a broker and sell them at a high price, hoping to buy them back later at a lower price and return them to the broker, keeping the difference as profit. Short selling can be profitable in a bear market as prices fall, but it can also be risky as prices can rise unexpectedly
• Put options: These are contracts that give investors the right, but not the obligation, to sell an underlying asset at a specified price and time. Put options can be used to hedge against losses or speculate on price declines in a bear market. Put options can be cheaper than short selling and have limited downside risk, but they can also expire worthless if prices do not fall below the strike price¹
• Inverse ETFs: These are exchange-traded funds that track the inverse performance of an index or sector. Inverse ETFs can be used to profit from falling prices in a bear market without short selling or buying put options. Inverse ETFs can be simpler and more convenient than other methods, but they can also have high fees and tracking errors that reduce their returns

A bear market is a period of time where prices decline significantly due to economic downturns and negative sentiment. A bear market can be challenging for investors and consumers, but it can also create opportunities for those who are prepared and adaptable.