A bear market occurs when there are declining prices in a market for a prolonged period of time. It often involves the price of securities falling by 20% or more. This generally happens amid widespread investor pessimism. It\u2019s important to understand what exactly a bear market is. Especially when it comes to the impact this has on your investment choices and financial planning.<\/p>\n\n\n\n
For more on online trading visit PublicFinanceInternational.org<\/a>.<\/p>\n\n\n\n Bear markets are usually associated with declining prices in a market or index. For example, the S&P 500 market index. Individual securities and commodities are in a bear market if they experience price declines of 20% or more over a long period of time.<\/p>\n\n\n\n Bear markets arise during general declines in the economy. The Great Depression was the first and most famous bear market. Another widely-known example is the 2008 housing crisis. <\/p>\n\n\n\n They last anywhere from several weeks to many years and are either secular or cyclical.\u00a0<\/p>\n\n\n\n A secular market is a bear phase that usually lasts between 10 and 20 years. This is when the market sees below-average returns for a prolonged time. Market prices will keep reverting back to lower levels until the bear phase is over.<\/p>\n\n\n\n On the other hand, a cyclical bear market is when bearish trends last for a short period of time. These tend to last anywhere from several weeks to a few months.<\/p>\n\n\n\n There are many things that lead to bearish phases in a market. In most cases, it comes down to a slowing or weak economy. Common signs of a slowing economy are high unemployment rates, low disposable income, and drops in business profits. <\/p>\n\n\n\n Government intervention in the economy is another contributor to bearish market trends. For example, changes to the tax rates may cause price movements that result in a bear market.<\/p>\n\n\n\n Another important factor behind bear markets is investor confidence. Financial markets and market sectors are greatly affected by investors\u2019 choices. <\/p>\n\n\n\n Investors tend to opt for the safety of fixed-income or cash securities during a bear market. Rather than buying into the market, investors will want to sell their securities.<\/p>\n\n\n\n There are typically four different phases that are tell-tail signs of a bear market.<\/p>\n\n\n\n There is a signifcant amount of potential loss in a bear market. If you plan to invest in equities during this time then you should do so carefully. During a bear market, most investors move their money into cash or fixed-income securities. <\/p>\n\n\n\n Another way to prepare is by careful financial planning. Your financial advisor should help you avoid making any rash financial decisions. A big trap that investors fall into is making financial decisions based on emotion.\u00a0<\/p>\n\n\n\n Some professional investors attempt to make profit during bear markets by short selling<\/a>. This strategy involves selling borrowed shares and buying them back at lower prices. It is a risky trade and has high potential risk if it doesn't work out. <\/p>\n\n\n\n A short seller borrows shares from a broker before placing a short sell order. The profit is the difference between the sell price and the buy price of the shares.<\/p>\n\n\n\n For example, an investor shorts 500 shares of a stock at $100. The price falls and the shares are covered at $90. The investor pockets a profit of $10 x 500 = $5,000. If the stock unexpedetly trades higher, the investor must buy back the shares at a premium. This results in a heavy loss for the trader.<\/p>\n\n\n\n There are many examples of bear markets in recent decades around the globe. <\/p>\n\n\n\n In December 2018, major US market indexes were on the brink of a bear market<\/a>. Several indexes fell almost 20% in value. <\/p>\n\n\n\n Before this, the famous housing crisis occurred in the United States between 2007 and 2009<\/a>. The bear market during the financial crisis lasted for about 17 months. This caused the S&P 500 index to fall by 50% in value during this period.<\/p>\n\n\n\n More recently, major indexes such as Dow Jones Industrial Average saw a sharp decline in value. This brought the indexes into a bearish phase in March 2020. <\/p>\n\n\n\n During February 2020, stocks across the globe entered into a sudden bear market. This was a result of the COVID-19 global pandemic. The DJIA index dropped by 38% after its all-time record high during February.<\/p>\n\n\n\n Bear markets occur in conditions where market prices fall by more than 20%. This is often accompanied by declines in economic prospects and investor pessimism.<\/p>\n\n\n\n Understanding market direction goes a long way in planning your long-term investment strategy. This will help you manage your risk and achieve your financial goals. <\/p>\n\n\n\n Strong risk management and diversified portfolios are key to managing the ebbs and flows of the market.<\/p>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":3953,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_stopmodifiedupdate":false,"_modified_date":"","ub_ctt_via":"","_important_terms":"","inline_featured_image":false,"_uag_custom_page_level_css":"","advgb_blocks_editor_width":"","advgb_blocks_columns_visual_guide":"","footnotes":""},"categories":[225],"tags":[],"table_tags":[],"featured_image_src":"https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price.jpg","author_info":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"acf":[],"author_meta":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"featured_img":"https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price-300x125.jpg","uagb_featured_image_src":{"full":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price.jpg",1200,501,false],"thumbnail":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price-150x150.jpg",150,150,true],"medium":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price-300x125.jpg",300,125,true],"medium_large":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price-768x321.jpg",768,321,true],"large":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price-1024x428.jpg",1024,428,true],"1536x1536":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price.jpg",1200,501,false],"2048x2048":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-falling-price.jpg",1200,501,false]},"uagb_author_info":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"uagb_comment_info":0,"uagb_excerpt":null,"coauthors":[],"tax_additional":{"categories":{"linked":["Knowledge Base<\/a>"],"unlinked":["Knowledge Base<\/span>"]}},"comment_count":"0","relative_dates":{"created":"Posted 3 years ago","modified":"Updated 3 years ago"},"absolute_dates":{"created":"Posted on May 28, 2021","modified":"Updated on June 16, 2021"},"absolute_dates_time":{"created":"Posted on May 28, 2021 1:38 pm","modified":"Updated on June 16, 2021 8:23 am"},"featured_img_caption":"","series_order":"","_links":{"self":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/3952"}],"collection":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/comments?post=3952"}],"version-history":[{"count":2,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/3952\/revisions"}],"predecessor-version":[{"id":507059,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/3952\/revisions\/507059"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/media\/3953"}],"wp:attachment":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/media?parent=3952"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/categories?post=3952"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/tags?post=3952"},{"taxonomy":"table_tags","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/table_tags?post=3952"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Understanding Bear Markets<\/h2>\n\n\n\n
What Causes a Bear Market?<\/h2>\n\n\n\n
Phases of a Bear Market<\/h2>\n\n\n\n
How to Take Advantage<\/h2>\n\n\n\n
Examples<\/h2>\n\n\n\n
Conclusion <\/h2>\n\n\n\n