bear market

In financial markets, a bear market is a period during which prices fall consistently. The term most often refers to the stock market, although it can apply to other markets, including bond prices, the value of real estate, and cryptocurrencies, which have seen several severe downturns since their inception in the early 2010s.

A “bear” is an investor who expects prices to decline and positions their portfolio accordingly. The term may derive from the proverb about “selling the bearskin before one has caught the bear” or perhaps from selling when one is “bare” of stock.

Common signs of a bear market

Bear markets often arrive with—or ahead of—economic downturns. Typical warning signs include:

• Companies report lower earnings, with falling revenue or shrinking profit margins.
• Consumers are cutting back spending, especially on discretionary items.
• Job creation has slowed down or begun falling, and the unemployment rate is climbing.
• Traders are selling stocks or shifting to defensive assets like gold or Treasury bonds, or so-called “defensive sectors” such as consumer staples and utilities. 
• Market volatility increases and investor sentiment turns negative.

Bear markets may be triggered by economic slowdowns, geopolitical uncertainty, or sudden shocks like financial crises or pandemics. They can last a few months or stretch over several years, depending on the underlying causes.

For example, the COVID-19 pandemic triggered a rapid bear market in early 2020, but markets recovered within months. In contrast, the 2007–09 bear market, which was brought on by the global financial crisis, was much deeper and long-lasting.

Bear market strategies

Although bear markets can be unsettling, whether you’re an active trader, long-term investor, or somewhere in between, you don’t have to sit them out. Here are several strategies that can help you navigate—or even profit from—a down market:

• Stay diversified. A well-balanced portfolio that includes defensive sectors, bonds and other fixed-income securities, and cash can help cushion losses during broad sell-offs.
• Rebalance your portfolio. Bear markets are a good time to revisit your asset allocation. If stocks have lost value, rebalancing may mean buying them at a discount.
• Use dollar cost averaging. This approach involves investing a set amount of money at regular intervals, regardless of market performance. It can help you buy more shares when prices are low and smooth out volatility over time.
• Consider long puts, covered calls, or collars. A put option gives the holder the right to sell a stock at a set price. Buying “protective” puts can act as a hedge if you’re concerned about further downside but don’t want to sell your holdings outright. Alternatively, a covered call—selling a call option on stocks you already own—can generate income even if the stock isn’t rising. A collar is the pairing of a covered call and a protective put, allowing you to use the income from the call to offset (or partially offset) the cost of the long put.  
• Short-sell stocks or buy inverse ETFs. More advanced traders may try to profit directly from falling prices by selling stocks short or using inverse exchange-traded funds (ETFs). These strategies involve higher risk and are typically used only with extreme caution.

The bottom line

No matter where you are in your investing journey, a bear market can test your patience and confidence. But bear markets are also a normal part of the economic cycle. Although it’s tempting to panic during a downturn, staying focused on long-term goals—and using the right tools—can make all the difference.

Investors who understand how bear markets work are better prepared to ride them out, rebalance their strategy, or even spot opportunities hidden in the fear.