Introduction to Bear Market
Stocks are sharply swinging down, up, then down again on Wall Street as markets try to assess the potential damage from President Donald Trump’s global trade war. European and Asian shares saw dramatic losses, the leading U.S. index is flirting with bear market territory, and oil prices are sagging.
Trump says he won’t back down on his sweeping new tariffs.
Countries are scrambling to figure out how to respond to the tariffs, with China and others retaliating quickly.
Trump’s tariff blitz fulfilled a key campaign promise as he acted without Congress to redraw the rules of the international trading system. It was a move decades in the making for Trump, who has long denounced foreign trade deals as unfair to the U.S.
The higher rates are set to be collected beginning Wednesday, ushering in a new era of economic uncertainty with no clear end in sight.
With talks of the economy in overdrive since the Trump’s tariffs took effect, many economic terms have been thrown around, including "bear market" and whether the current state of the stock market brings us into bear market territory. But what exactly is a bear market and are we in one?
Here’s what you need to know:
What is a Bear Market?
All the tumult has dragged the S&P 500 close to 20% below its record, which it set less than two months ago. If it finishes the day below that mark, it would be a big enough drop that Wall Street has a name for it. A “bear market” signifies a downturn that’s moved beyond a run-of-the-mill 10% drop, which happens every year or so, and has graduated into something more vicious.
According to the U.S. Securities and Exchange Commission, a bear market is a period of time when stock prices have fallen at least 20% from recent market highs and the market outlook is pessimistic. Generally, that decline is over at least a two-month period.
The closing price of the S&P 500, which is an index that tracks the prices of 500 large publicly traded US companies, is used to gauge if the US stock market is in bear-market territory, according to the multinational investment services firm Fidelity.
Wall Street Wakes Up to More Losses
U.S. stocks are swinging Monday following a manic morning where indexes plunged, soared and then sank again as Wall Street tossed around a false rumor about President Donald Trump’s plans for his trade war.
After trading began, the S&P 500 quickly sank 4.7% following even worse drops for financial markets worldwide amid worries that Trump’s tariffs could torpedo the global economy. But it suddenly erased all of it and surged to a gain of 3.4%, which would have counted as its best day in years. Almost as quickly, the index that sits at the heart of many investors’ 401(k) accounts gave that up and was roughly flat in midday trading.
Other U.S. stock indexes also careened through shocking trading. The Dow Jones Industrial Average went from a loss of 1,700 points to a leap of nearly 900 before settling at a loss of 272 points, or 0.7%, as of 11 a.m. Eastern time. The Nasdaq composite was 0.7% higher.
The swings shook the market as a White House account on X said a rumor circulating that Trump was considering a 90-day pause on his tariffs was “fake news.” The intense and sudden moves show how hard financial markets are straining to see hopes that Trump may let up on his stiff tariffs, which economists see raising the risks of a global recession.
Does a Bear Market Mean a Recession is in Our Future?
Does a bear market mean a recession is in our future? Not really, but maybe. Although people may believe that a bear market means a recession is in the future, the two don’t necessarily go hand-in-hand. According to Fidelity, a quarter of bear markets haven’t ended in a recession.
A recession is typically defined by two consecutive quarters of decline in economic activity — specifically a decline in a country’s inflation-adjusted gross domestic product (GDP) — the value of all goods and services a country produces, according to the International Monetary Fund. It is important to note that very short periods of decline are not considered recessions.
Conclusion
In conclusion, a bear market is a period of time when stock prices have fallen at least 20% from recent market highs and the market outlook is pessimistic. The current state of the stock market has brought us close to bear market territory, but it does not necessarily mean a recession is in our future. It is essential to understand the difference between a bear market and a recession to make informed investment decisions.
FAQs
- Q: What is a bear market?
A: A bear market is a period of time when stock prices have fallen at least 20% from recent market highs and the market outlook is pessimistic. - Q: Does a bear market mean a recession is in our future?
A: Not necessarily, although people may believe that a bear market means a recession is in the future, the two don’t necessarily go hand-in-hand. - Q: How is the US stock market’s bear-market territory determined?
A: The closing price of the S&P 500 is used to gauge if the US stock market is in bear-market territory. - Q: What is the difference between a bear market and a recession?
A: A bear market is a decline in stock prices, while a recession is a decline in economic activity, specifically a decline in a country’s inflation-adjusted gross domestic product (GDP).
