Bear Market

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  • Definition: A bear market is characterized by a sustained decline of 20% or more in a stock market index or individual security from a recent peak.
  • S&P 500: The S&P 500 recently briefly entered bear market territory for the first time since 2022.
  • Investor Sentiment: Bear markets are typically associated with widespread investor pessimism and large-scale selling of assets.
  • Causes: Bear markets can be triggered by weak economic conditions, anticipated slowdowns, overvalued markets,
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    or external events like wars or oil supply shocks.
  • Recession Link: Bear markets often precede recessions (economic slowdowns), but not always.
  • Frequency: Historically, US stocks have entered bear market territory roughly every 6 years.
  • Duration: In the US, bear markets have lasted about 18.9 months on average.
  • Global Examples: The Indian stock market experienced a severe bear market during the 2008 global financial crisis, with the Nifty 50 index dropping over 35%.
  • Investor Action: A “bear” is an investor who expects prices to decline and sells borrowed securities hoping to buy them back cheaper later (selling short).
  • Market Correction: A market correction is a
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    decline of at least 10%, while a bear market is a decline of at least 20%.