Bear Market

A market decline of 20% or more from a recent peak, typically accompanied by negative investor sentiment and economic weakness.

By convention a bear market is defined as a decline of at least 20% from a recent high, sustained for at least two months. The term captures not just the magnitude of decline but the broader shift in psychology: sentiment turns pessimistic, selling begets more selling, and risk appetite retreats across asset classes. Bear markets are often accompanied by recession, but not always — the 2022 bear market occurred with GDP contracting but without the employment deterioration typical of recessions.

Bear markets vary dramatically in severity and duration. Shallow cyclical bears driven by Fed tightening may only last months and retrace 20–30%. Structural bears associated with financial crises can last years and erase 50–80% of peak value. The S&P 500's worst bear markets were the Great Depression (−89%), the dot-com crash (−49%), and the 2008 financial crisis (−57%).

Navigating bear markets is one of the hardest challenges for individual investors because human psychology pushes toward selling at the worst possible time. Missing the ten best days in the market — which often occur during bear markets when snap-back rallies are most violent — dramatically reduces long-term returns. Most financial advisors counsel maintaining allocation through bear markets rather than attempting to time the exit and re-entry.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.