A bear market is when the stock market falls by 20% or more from its recent highs.
There are two schools of thought on how a bear market happens. One belief is that it’s simply a matter of supply and demand: When more investors want to sell a stock than buy it, the price falls.
The other belief is that bear markets are caused by an underlying economic problem, such as high unemployment or inflation. When these problems exist, investors become worried about the future and start selling their stocks. This selling can cause a self-fulfilling prophecy, where the market falls even further because everyone is expecting it to.
No one knows for sure how a bear market starts, but they often happen after a long period of stock market growth. This is because investors become complacent and overconfident, and they are willing to pay more for stocks than they are actually worth. When the market finally does start to fall, it can fall quickly and sharply.
Investors who are caught in a bear market often feel panicked and helpless. However, it’s important to remember that bear markets are a natural part of the investing cycle, and they eventually come to an end. By staying calm and holding onto your investments, you will be able to weather the storm and come out ahead in the end.