Glossary
Bear market
A broad decline of 20% or more from a recent high in a major index, usually lasting months and accompanied by pessimism.
A bear market is a prolonged decline in which a broad index such as the S&P 500 falls 20% or more from its most recent peak. The 20% line is a convention used by the financial press, not an official rule, but it is the threshold most data providers use. Bear markets matter because they are when long-term investors are tested hardest and when portfolio choices made in calmer times, such as how much to hold in stocks, show their consequences.
How it is measured
The decline is measured from a closing high to a closing low. A bear market is usually said to end when the index has risen 20% from its low, and it is often dated back to that low. A drop of 10% to 20% is called a correction.
The 2020 decline took just over a month; the 2007–2009 one lasted about 17 months. A 56.8% loss requires a gain of about 131% just to break even, which shows why deep bear markets take years to recover from.
What usually comes with them
Bear markets often, but not always, coincide with recessions, falling earnings estimates and rising unemployment. Volatility tends to jump, and sharp rallies of 10% or more within a larger decline are common, which is why they are sometimes called bear-market rallies. Different sectors fall by very different amounts.
The label can also apply to a single stock, a sector or another asset such as bitcoin or oil. Investors who are pessimistic are called bears, and "bearish" describes any expectation that prices will fall.