What is Bear market?

A bear market is a long, deep fall in prices. The usual convention is a decline of 20% or more from the most recent peak, meaning the highest point reached before the fall. The term is most often applied to a broad stock index such as the S&P 500, but it is also used for single shares, bonds, commodities or Bitcoin. Bear markets tend to come with gloomy news and widespread pessimism. They are the opposite of a bull market, a stretch of rising prices. A smaller fall of roughly 10% to 20% is usually called a correction.

Say you invest $10,000 in an index fund, a fund that tracks a market index, and the market then falls 25% from its peak. Your holding drops by $2,500 (25% of $10,000) to $7,500. To get back to $10,000, it needs to gain $2,500 on a base of $7,500. That is $2,500 ÷ $7,500, or about 33%. The deeper the fall, the steeper the climb: a 50% loss needs a 100% gain to recover, and an 80% loss needs 400%. This uneven arithmetic is why the depth of a bear market matters so much.

Past bear markets have varied widely. Measured from peak to low with dividends (the cash payouts companies make to shareholders), the S&P 500 fell 45.7% in 2000–2002, 54.6% in 2007–2009, 31.8% in 2020 and 23.9% in 2022. The technology-heavy Nasdaq-100 fell 83% from 2000 to 2002. Some of these declines were short and sharp, while others stretched over years.

A common misunderstanding is that a bear market is easy to recognise while it is happening. The 20% line is a convention, not a law, and a bear market is usually confirmed only after prices have already fallen a long way. Bear markets often contain strong rallies that later fade, and the lowest point becomes clear only in hindsight. A bear market is also different from a recession, which is a decline in economic activity. The two often overlap but do not always arrive together.

For a private investor building a long-term portfolio, bear markets are a normal part of owning shares. Over the 32 calendar years 1994–2025, 25 were positive for the S&P 500, and no 20-year period since 1993 lost money. Even so, the worst 10-year period since 1993 returned −3.4% a year (ending February 2009). Knowing how deep past declines went helps investors choose an asset allocation, meaning the mix of shares, bonds and cash, that they can hold through a bear market without selling near the low.

By Dr. Harry Hamann

What is the difference between a bear market and a correction?
By convention, a correction is a fall of about 10% to 20% from a recent peak, while a bear market is a fall of 20% or more. Both thresholds are rules of thumb rather than official definitions.

What was the worst bear market in US history?
According to Shiller data, US stocks fell 85% in price from September 1929 to June 1932, or 82% with dividends. Getting back to the peak took 25 years in price terms and 15 years with dividends.

How long do bear markets last?
There is no fixed length. The 2020 S&P 500 decline of 31.8% happened within a single year, while the 2000–2002 fall of 45.7% stretched across three calendar years. The length becomes known only in hindsight.

Is a bear market the same as a recession?
No. A bear market describes falling asset prices, while a recession is a decline in economic activity. They often overlap, but a bear market can occur without a recession, and the reverse is also possible.