Bear market

Written by Fmi.Online Friday January 6, 2023
A bear market is a period of at least two months of declining stock prices that leads to a falling total stock market value. In this depressed market, the major indexes such as the S&P 500 and the Dow Jones Industrial Average decline by at least 15 percent.

Explanation:

This type of market is the result of declining investor confidence. As investors do not trust the market, they massively sell their securities, thereby causing multiple losses in the major indexes. As the losses grow bigger, investor confidence declines further until the stock market crashes. A bearish market usually follows an economic recession with high inflation  that slows down economic growth further. The unemployment rate is high, and consumer spending is low as consumers do not have the disposable income to buy basic goods.

In a nutshell :

  • Bear markets occur when prices in a market decline by more than 20%, often accompanied by negative investor sentiment and declining economic prospects.
  • Bear markets can be cyclical or longer-term. The former lasts for several weeks or a couple of months and the latter can last for several years or even decades.
  • 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.
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