What Is A Bear Market And What To Watch Out For

Bear Markets

A bear market is a financial term used to express when the price of a group of stocks, bonds, currencies, or commodities are steadily declining or expected to.

crude oil bear market

The above chart is of crude oil, from 1997 when it went from $25 a barrel down to as low $11 in 1998. On June 17, 2014, crude oil futures were trading over $105 per barrel. However, fears of oversupply and lack of demand pushed crude prices lower, and have yet to fully recover, having some analysts believing that the bear market in crude oil  is not over.

According to First Trust Adivsors L.P., the average bear market period in the stock market lasted 1.4 years with an average cumulative loss of -41%

One of the most violent bear markets occurred during the financial crises. From October 9, 2007 to March 9, 2009, the stock market declined by 56.8%

How Does a Bear Market Get Started

A bear market could arise from panic selling, fear, and overall negative sentiment on the market. Investors believe that the market will continue to decline which adds to the selling pressure.

For example, the financial crisis was largely due to the housing bubble collapsing. The economy weakened, debt escalated, businesses downsized, people lost jobs, and overall sentiment became very negative.

However, the economy began to stabilize and the bear market was short lived.

Despite bear markets being shorter than bull markets.  The damage done in a bear market is violent. There is an old expression on Wall Street that says the stock market takes the steps up and the elevator down. 

Bottom Line

A bear market is caused by investors acting fearful. However, in the case of the stock market, bear markets have proven to be buying opportunities. It’s true that no investor can pick tops or bottoms. But a bet against the stock market is a bet against America. So far, America has always bounced back.

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