a

Defining a Bear Market

a bear market is a period of time when

the broader stock market declines by a

significant amount and while the name

might seem scary a decline in the

broader stock market is a normal part of

the investing process in this video

we'll further define a bear market and

examine typical characteristics will

also discuss strategies you might

consider to help reduce risk during a

bear market there are generally two

types of bear markets minor Corrections

and full-fledged bear markets a

correction is when the broader stock

market such as the SP 500 index declines

ten percent from its highs Corrections

are common and are typically seen

several times per year Corrections occur

for different reasons such as a negative

economic report or poor earnings

guidance issued by a high profile

company a full-fledged bear market is a

more significant to climb this type of

bear market occurs when the sp500

declines 20 percent or more from its

recent highs however bear markets

generally occur infrequently for

instance from 2000 to 2013 the sp500

experienced two bear markets a bear

market is usually associated with

investor pessimism toward the future of

the economy corporate profits and stock

prices in general sometimes a bear

market might be a precursor to a

recession a recession is defined by two

consecutive quarters of negative gross

domestic product which is a broad

measure of the economy a recession is

typically characterized by decreasing

consumer spending and increasing

unemployment in addition to a declining

stock market some of the worst bear

markets in history ultimately led to a

recession for example there's the famous

crash of 1929 during this bear market

the broader stock market declined almost

90% over the course of the Great

Depression

a more recent bear market includes the

dot-com bubble in 2000 this time the

broader stock market declined about 47%

leading to a recession another recent

example is the financial crisis of 2008

during this bear market the broader

stock market declined more than 50

percent leading to a severe recession

but these three examples of bear markets

are extreme in fact since 1929 the

average bear market resulted in a 38%

decline in the broader stock market now

that you know some characteristics let's

discuss how investors might confirm a

bear market after the broader stock

market declines 20% from recent highs

investors can use a drop below yearly or

multi-year lows as confirmation another

way to help confirm a bear market is to

apply the 200-day moving average to a

broad market index such as the S&P 500

some investors view it drop below the

200-day moving average as confirmation

after confirming a bear market investors

might apply certain strategies to reduce

the risk of stocks declining further for

example investors might sell a portion

of a stock portfolio if the broader

market breaks down to yearly or

multi-year lows or if the S&P 500 drops

below its 200-day moving average but

whether an investor chooses to sell

stocks or not depends on the investor's

time horizon among other factors keep in

mind that since 1929 the broader stock

market has needed an average of five

years to recover from a bear market so

if an investor's time horizon is less

than five years it might be reasonable

to consider reducing risk by selling

stocks

conversely if an investor's time horizon

is greater than five years it might be

reasonable to consider doing nothing but

simply hold existing stock positions

some investors might even view a bear

market as an opportunity to pick up new

long-term stock investments at favorable

prices remember a bear market is a

normal part of the investing process in

fact it typically occurs about once

every five to ten years and as long as

investors maintain stock portfolios that

align with their time horizons a bear

market is manageable it may even lead to

potential opportunities

you

[Music]

[Music]

you