A place where bears get together for the exchange of goods and services, often on a Saturday afternoon in the woods.
Just kidding. Although, who are we to say that bears don’t have some kind of market trading system. The world may never know.
Anyway, in this dictionary, a bear market is a market in which security prices are plummeting. People get upset, then worried, then the downward spiral continues as everyone starts to sell in a panic. Overall, a bear market occurs when there is a 20% downturn in the DOW Jones or S&P 500 for over two months.
Bear market is the opposite of a bull market, where prices are rising and everyone is happy. That’s probably why the Wall Street bull is a bull and not a bear. But there actually is a reason behind both names. A bear swipes downward at its prey and a bull thrusts its horns upwards. Now there’s a fun little factoid for the next office party.
A bear market can be caused by a lot of different things but a slow, sluggish economy is a pretty good indication that it could happen. Sometimes it can be as simple as a drop in the confidence of investors because they’ve put on a little weight recently or because they feel like the market might take a downturn soon and therefore sell off shares to avoid a loss.
There are four phases that lead to a bear market, which are as follows:
- High prices and high investor confidence, which means people start to sell for a profit
- Stock prices fall rapidly, trading and profits fall along with it, and there are now negative indicators of economic outcomes.
- Speculators sneak their way into the market and snap up some low priced stock, raising prices and trading volume a bit
- Stock prices continue to drop slowly but surely.
Then the low prices start to turn things around and our friend the bear eventually transforms into a bull.
BROKER 1: What are we going to do about this bear market?
BROKER 2: Wait for it to turn into a bull like we always do.