What's a Bear Market?

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You keep hearing about when the current bull market will end, when it will turn into a bear market.

Well, it’s hard to know what will happen for sure, but we kind of already had a bear market.

We’ll explain.

First off, don’t confused a correction with a bear market.

A correction is when stock prices fall 10% from their peaks.

A bear market is when stock prices fall 20% from their peaks.

Bear markets are often sustained for longer periods of time than corrections are.

Corrections can often happen when the market thinks stocks are a bit overvalued, given the outlook for corporate profits. Then, they fall 10% or a bit more. Then, they can recover, resenting a buying opportunity, but they likely will take a long time to recover to previous highs. The correction can be a few weeks.

In bear markets, stocks can stay depressed for a really long time. After the financial crisis, we saw a deep bear market — a 50% drop from recent highs — which lasted for over 6 months.

In December 2018, we saw what some on Wall Street calls a “mini bear market,” which is one that lasts for a few weeks. Stocks fell 20% and then rose again in mid January. And they kept rising.

There's one last point you need to understand. To hear it, watch the quick video above. 

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