Bear Market: Definition, History, Phases, Crypto, When To Invest In One, Comparison With Bull Market
Sarah Duran
Updated on April 12, 2026
The investing world is filled with many foreign jargons and terms that only industry players understand. A bear market is one of them. Every investor needs to understand what a bear market means and how it affects their choices and financial outputs.
What Is A Bear Market?
A bear market can be defined as a period where the market experiences prolonged price depreciation. It is a condition where the prices fall by twenty percent or more from recent highs amid widespread pessimism and negative investor sentiment.
Typically, bear markets can either be cyclical or long-term. The former often lasts for a few weeks or months, while the latter can last for several years or decades. Bear markets are associated with declines in an overall market or index like the S&P 500. However, some individual securities and commodities can also be considered to be in a bear market if there is a decline of 20% or more over an extended period. In this case, the duration is usually two months or more.
Bear markets may occur during general economic downturns such as recessions. A bear market can be caused by varying issues such as a weak economy, pandemic, war, geopolitical crisis, and drastic economic paradigm shifts. The government’s intervention in an economy can set off a bear market. An example of the latter statement is a tax or federal funds rate change.
Furthermore, a dip in investors’ confidence signifies that a bear market is about to occur. Once investors think something is about to happen, they tend to sell off their shares. They make this move in a bid to avoid losses. Thus, the definition of a bear market can also be rephrased as a period where investors are more risk-averse than risk-seeking.
A cyclical bear market usually lasts for a few weeks or several months. On the other hand, a secular bear market lasts between ten to twenty years and experiences below average returns on a sustained basis. Nevertheless, there may be periods during a secular bear market where the stocks or indexes rally for some time, but the gains are not sustained, and the prices return to lower levels.
Phases Of A Bear Market
A bear market typically undergoes four phases:
- Phase One – The first phase is known for high prices and investor sentiment. In this phase, investors start to drop out of the markets and take in profits.
- Phase Two – Here, the stock prices begin to fall rapidly. Also, trading activity and corporate profits start to drop, and economic indicators -that were once positive- gradually become average. More so, some investors start to panic as the sentiment begins to fall. This event is called “Capitulation.”
- Phase Three – In the third phase, speculators enter the market, raising some prices and trading volume.
- Phase Four – The fourth phase is the find phase in a bear market. Here, the stock prices continue to drop, but slowly. Once the low prices and good news attract investors again, the bear market begins to transform into a bull market.
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