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How do bear markets work?

Bear markets usually have four different phases. The first phase is characterized by high prices and high investor sentiment. Towards the end of this phase, investors begin to drop out of the markets and take in profits.

What is a bear market?

One definition of a bear market says markets are in bear territory when stocks, on average, fall at least 20% off their high. But 20% is an arbitrary number, just as a 10% decline is an arbitrary benchmark for a correction. Another definition of a bear market is when investors are more risk-averse than risk-seeking.

Is the US stock market in bear-market territory?

The closing price of the S&P 500, an index that tracks the prices of 500 large publicly traded US companies, is often used to gauge if the US stock market is in bear-market territory. Bear markets are the mirror image of bull markets, which represent an increase of at least 20% from market lows.

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