What is Bear Market?

The term “bear market” is named after the way a bear attacks its prey by swiping its paws downward.

Bear markets are often associated with a loss in an entire market or index, however, individual stocks or items can also be deemed to be in a bear market if they undergo a 20% or more decline over a prolonged duration.

Bear markets happen occasionally. Nowadays, the economy is able to recover fast because a bear market typically fixes itself. Looking back in time, Wall Street has faced 13 bear markets since WWII, every five or six years, and every one of them lasted a bit over a year. Overall, bear markets can last several years or only a few weeks.

Nonetheless, even if a bear market corrects itself, a recession can still occur if stock prices continue to fall. A recession occurs when the economy stops increasing for an extended period of time (usually two quarters or more of negative economic growth).

Talking about bear markets in the crypto world, Bitcoin experienced a major drop from approximately $20,000 to just over $3,000 in December 2017. This was the most well-known crypto crash in history.

Examples of the Most Well-Known Bear Markets

There are several examples of bear markets that took place over the years. Here are a few of them.

The Great Depression

In 1929, the Great Depression started, and it is now seen as one of the lengthiest and harshest economic slumps. It was only in the late 1930s that the global economy started to recover.

There are people that believe that the 1929 U.S. stock market downturn was the most significant, nevertheless, others point out that it might have been an outcome rather than a cause.

The thought that the market would continue to rise and people would take part was what caused the overall fall in the first place.

The 1929 Wall Street Crash was a dramatic and sudden collapse in stock prices on the New York Stock Exchange. This was accompanied by the London Stock Exchange Crash, which marked the beginning of the Great Depression. It was accompanied by the "Roaring Twenties," an era of luxury before World War I.

The Dot-Com Bubble

Google, Amazon, and Yahoo! were a few of the new tech organizations that quickly expanded as the internet’s adaptation throughout the world drove the market expansion in the late 1990s.

In this sense, the S&P 500 climbed by almost 400 percent before falling by 49% in March 2000. Prices could no longer be rationalized since they had become so high as a result of over-speculation and strong market sentiment. Simultaneously, investors continued to invest money into dot-com stocks, and supply began to overwhelm demand.

Companies were able to get investors to undertake ineffective operations despite the fact that they lacked a clear approach.

The Financial Crisis

Due to the risk-taking of financial markets and the housing crisis, the global financial crisis that occurred in 2007-2008 was the biggest bear market since the Great Depression. The collapse occurred in September of 2008, at the same time as Lehman Brothers filed for bankruptcy, initiating the global financial crisis.

As a result of these events, the S&P 500 lost about half of its value, nevertheless, the market began to climb again in 2009 and began a bull market that continued until February 2020.

Bear Market VS Market Correction VS Pullback

To better understand the differences, keep in mind that a bear market happens when prices fall by 20% or even more, and this can last from years to a few weeks. Also, when the investors lose confidence in the market, they begin to leave. This leads to trading activity decreases because a number of investors would sell their assets to protect themselves from losses.

Market correction, on the other hand, takes place when prices fall by 10% to 20% and can linger for two to four months. This time period is very volatile, and it has the potential to drive investors to fear a bear market and sell.

Pullback occurs when the price falls by 5% to 10%, although it is short-termed, lasting a few days or weeks. It's similar to going through a typical period of adjustment.