The term “bear market” comes from an old practice of selling bearskins in the 1700s. Traders, known as “bearskin jobbers,” would sell bearskins before they actually caught the bears – basically betting on prices going down. The downward motion of a bear’s attack also inspired the name, contrasting with the upward thrust of a bull’s horns in a “bull market.” There’s much more to discover about how these animal-inspired terms shaped financial history.
Quick Overview
- The term originates from an old proverb about selling bearskins before catching the bear, symbolizing speculative trading practices.
- Bears attack with a downward motion, which mirrors the declining movement of stock prices in a falling market.
- “Bearskin jobbers” in the 1700s would sell bearskins before actually having them, leading to the term “bears” in trading.
- The bear symbolism contrasts with bull markets, representing opposing directional movements in stock prices.
- The term became popularized during early stock market trading as a metaphor for traders who profit from falling prices.
When investors talk about a “bear market,” they’re referring to a time when stock prices take a big dive. These markets get their name from the way a bear attacks, swiping its paws in a downward motion. This stands in contrast to a bull market, which is named after the way a bull attacks by thrusting its horns upward. A typical bear market shows negative sentiment that appears in financial indicators.
The term “bear market” has quite a history, dating back to the 1700s. It comes from an old proverb about selling bearskins. Back then, traders would sometimes sell bearskins before they actually had them, hoping to buy them later at a lower price. These traders became known as “bearskin jobbers,” and eventually, just “bears.” The term became super popular during the South Sea Bubble of 1720, when lots of investors lost money.
When talking about bear markets today, we’re looking at periods when stock prices fall by 20% or more and stay down for at least two months. During these times, people tend to feel pretty negative about investing, and there’s usually less trading happening in the markets. Bear markets often show up when the economy isn’t doing so hot, like during recessions. During these periods, there’s typically a decline in IPO activity as companies become hesitant to go public. These downturns are frequently accompanied by weak productivity and falling business profits.
History has seen some really tough bear markets. The Great Depression of 1929 was brutal, with stocks dropping a whopping 89% over almost three years. The 1973 Oil Crisis led to a 48% drop, and the dot-com bubble of 2000 saw stocks fall 49%. More recently, during the 2008 Financial Crisis, stocks tumbled 57%, and in 2020, the COVID-19 pandemic caused a sharp 34% decline in just over a month.
During bear markets, investors tend to change how they handle their money. Some move their cash to more stable investments like utility companies or businesses that sell everyday items people need no matter what. Others try to make money from falling prices by short selling, which means betting that prices will go down. Some investors buy special contracts called put options to protect themselves, while others keep investing the same amount regularly to take advantage of lower prices.
Bear markets are just part of how financial markets work. While they can be scary, they’ve happened many times throughout history. Just like real bears in nature, these market downturns are powerful and can cause damage, but they don’t last forever.
Frequently Asked Questions
How Long Does a Typical Bear Market Last?
A typical bear market lasts around 9.6 months or 289 days, though there’s quite a bit of variation.
Some are super short, like the 2020 COVID-19 bear market that lasted just 2 months, while others can drag on for years.
Since 1928, the average length has been 349 days.
The longest one stuck around for 3 years, from 1946 to 1949.
Modern bear markets tend to be shorter than bull markets.
What Are the Best Investments to Make During a Bear Market?
During bear markets, investors often turn to several types of investments that have historically shown resilience.
Value stocks in defensive sectors like utilities, healthcare, and consumer staples tend to hold up better. These companies usually keep paying dividends even when markets are down.
Bonds, especially government bonds, can provide steady returns.
Some investors also look to alternative investments like gold or real estate investment trusts (REITs) for added stability.
Can Individual Investors Profit During a Bear Market?
Individual investors can profit during a bear market through several methods.
They can use inverse ETFs that go up when markets go down, buy put options that gain value as stocks fall, or invest in defensive stocks like food and healthcare companies.
Some investors choose short selling, though it’s riskier.
While making money in down markets isn’t easy, these strategies have helped investors capitalize on market declines throughout history.
How Often Do Bear Markets Occur in the Stock Market?
Bear markets happen pretty regularly in the stock market.
They’ve occurred about every 3.6 years on average since 1928, with 26 bear markets in the S&P 500 during this time.
While they typically last around 289 days (about 9.6 months), their length can vary quite a bit.
The shortest one lasted just 33 days in 2020, while the longest stretched for 61 months from 1946 to 1949.
What Signals Indicate the End of a Bear Market?
Several signals typically mark the end of a bear market. When stock prices rise 20% from their recent lows, it’s considered a key indicator.
Other signs include increased trading volume, improved investor confidence, and positive economic data like job growth.
Technical indicators, such as rising moving averages and stronger market breadth, also point to a bear market’s end.
The shift usually happens gradually as more investors return to buying stocks.
