A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Bear markets are often associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20% or more over a sustained period of time—typically two months or more. Bear markets also may accompany general economic downturns such as a recession.
A bear is an investor who believes that a particular security, or the broader market is headed downward and may attempt to profit from a decline in stock prices. Bears are typically pessimistic about the state of a given market or underlying economy. For example, if an investor were bearish on the Standard & Poor’s (S&P) 500, that investor would expect prices to fall and attempt to profit from a decline in the broad market index.
Short selling, put options, and inverse ETFs are some of the ways in which investors can make money during a bear market as prices fall.