Bear Market

What Is Bear Market?

A bear market is a sustained decline in the price of securities, commonly defined as a fall of at least 20% from a recent high. The term is often contrasted with a bull market of rising prices. Bear markets can unfold gradually or with startling speed. The 2020 COVID-19 crash produced one of the fastest on record: it took only about three weeks for the S&P 500 to fall 20% from its February 2020 peak, and the index ultimately dropped about 34% by its March 23 low before beginning to recover.

Why It Matters

Bear markets matter because they mark the periods when investor wealth contracts and economic stress often deepens, and their character varies widely across crises. The 2020 bear market was extraordinarily brief, with the S&P 500 recovering to new highs by August 2020 in a rapid V-shaped rebound aided by aggressive Federal Reserve and government support. Others last far longer: after the dot-com bust, the NASDAQ took roughly 15 years to reclaim its peak, and the Dow needed about 25 years to recover from its 1929 high. Comparing the depth and duration of bear markets helps economists distinguish short-lived shocks from prolonged structural downturns.

Test Your Knowledge

Questions on this topic from the EconRecall fact bank:

• The COVID-19 crash is sometimes described using what superlative, given how quickly the S&P 500 fell over 30% from its peak?
  The fastest bear market decline in history
• It took only about three weeks for the S&P 500 to fall 20% from its February 2020 peak, making it one of the fastest entries into what kind of market decline on record?
  A "bear market"
• In AP Microeconomics, when a per-unit tax is imposed on a good, which side of the market bears the larger share of the burden?
  The side of the market that is relatively more inelastic