If youve been following stock market news in 2025, youve probably heard the term bear market.
A bear market is a prolonged drop in the stock market of 20% or more.
Bear markets may seem terrifying, particularly if you monitor your retirement accounts and other investments daily.
But bear markets tend to be short, and theyre actually quite common.
What Is a Bear Market?
A bear market is a sustained decline of at least 20% in stock prices or other securities prices.
A stock market correction is similar, but less severe.
When stocks tumble below 20% of their record highs, its typically big news.
But its important to remember that theres nothing particularly significant about that number.
So theres no reason to panic just because we officially crossed into a bear market.
The opposite of a bear market is a bull market.
A bull market is a sustained period of rising stock prices and high investor confidence.
A new bull market begins when stock prices rise by 20% or more from their recent lows.
Bull and bear markets are both normal parts of the market cycle.
In fact, both are crucial to your long-term success as an investor.
A bull market offers the largest potential gains because thats when stock prices rise.
But if you only invested during bull markets, youd consistently pay top dollar for your investments.
Bear markets allow you to invest when prices are low and sell at higher prices when the market recovers.
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What Causes a Bear Market?
A bear market is because of growing investor pessimism.
Bear markets often begin before an economic recession or downturn.
For example, the bear markets that occurred in the early 2000s were triggered by the dot-com bubble bursting.
During times of high inflation, the Fed hikes interest rates with the goal of cooling off spending.
When interest rates rise, investors tend to consider alternatives toinvesting in stocks, like bonds.
Higher interest rates makeinvesting in bondsmore profitable, plus bonds have historically been a safer investment than stocks.
Reduced demand for stocks causes prices to plummet even further.
Higher costs dont just eat away at your budget.
They also reduce corporate profits because companies have to pay more for materials, wages and financing.
Companies in high-growth sectors, like technology, are hit especially hard by inflation.
One reason is that many of these companies arent yet profitable, so they have high levels of debt.
That means higher interest rates are especially hard on their bottom line.
Uncertainty
If theres anything the stock market despises, its uncertainty.
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How Long Do Bear Markets Last?
The good news is that bear markets tend to be much shorter than bull markets.
But the average bull market was 991 days, which is about 2.7 years.
In the same period, there have been 26 bear markets and 27 bull markets.
But bear markets are becoming less frequent.
Twelve of those bear markets occurred between 1928 and 1945, or once every 1.4 years.
The shortest bear market in history began on Feb. 19, 2020, and lasted just 33 days.
Through March 23, the S&P 500 index dropped by 34%.
All investing involves some risk, and past performance doesnt guarantee future results.
Missing the 10 best days of the market would reduce your average returns to 5.33%.
But for the investor who missed the markets 10 best days?
Theyd have just $28,260.
But its important to avoid making financial decisions based on emotion.
