Stocks & Equities · definition
Bear Market
A bear market is a decline of 20% or more from a recent peak in a broad market index. Since 1945 the average US bear market lasted about 13 months.
A bear market is a sustained fall in prices, conventionally defined as a drop of 20% or more in a broad index from its recent peak. Declines of 10% to 20% are called corrections. The label is informal (no committee declares bears, unlike recessions), but the 20% line is the convention used by exchanges, media and researchers.
Key takeaways
- Bear market: 20%+ decline from a peak. Correction: 10-20%.
- US bear markets have been far shorter than bull markets: roughly a year on average versus multi-year expansions.
- Not every bear market comes with a recession, and not every recession brings a bear market, though they often travel together.
- The name's origin is murky; the leading theory cites 18th-century bearskin traders who sold skins they did not yet own.
The historical record (S&P 500)
| Peak | Trough | Decline | Length |
|---|---|---|---|
| Sep 1929 | Jun 1932 | -86% | 33 months |
| Jan 1973 | Oct 1974 | -48% | 21 months |
| Mar 2000 | Oct 2002 | -49% | 31 months |
| Oct 2007 | Mar 2009 | -57% | 17 months |
| Feb 2020 | Mar 2020 | -34% | 1 month |
| Jan 2022 | Oct 2022 | -25% | 9 months |
Two patterns stand out in the full record. First, depth varies enormously: from technical 20-something-percent bears to the 1929-1932 collapse. Second, speed has varied just as much: the 2020 pandemic bear was the fastest 30%+ fall in history and also one of the quickest recoveries, while the dot-com unwind ground on for two and a half years.
What happens inside a bear
Falling prices are the definition, but bears bring characteristic side-effects: volatility rises, correlations between stocks increase (diversification within equities helps less exactly when it is wanted most), trading volume spikes on down days, and sharp multi-day rallies occur inside downtrends (some of the strongest single days on record happened in 2008). Historically, markets have often bottomed while economic news was still getting worse, which is why the index is classed as a leading indicator.
Bear versus bull
The opposite condition, a sustained rise, is a bull market. Because indexes have trended upward over the long run, bulls have historically lasted several times longer than bears, which is the statistical backdrop behind the buy-and-hold descriptions found throughout finance literature. Past patterns describe the record; they do not promise the future.
Frequently asked questions
Does a 20% fall in one stock make it a bear market?
The term is reserved for broad indexes. A single stock down 20% is just a stock down 20%.
Has every bear market been followed by a recovery?
The broad US indexes have eventually exceeded every previous peak so far. "Eventually" has ranged from months to, after 1929, a quarter of a century in nominal terms.
Sources
This entry is for education only. Investing Value describes how financial concepts work; it does not provide investment, tax or legal advice, and nothing here is a recommendation to buy or sell any asset.