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BEGINNERS GUIDE Crypto Weekly
What's a Bear Market Anyway? F
ear grips many investors when they hear the word "bear market." While these deep downturns are unavoidable, they are often relatively brief, especially in comparison to bull markets, when stocks are rising in value. However, bear markets can be profitable too. Whenever securities or commodities continuously fall in value, it is called a "bear market," like the one currently affecting US stocks. A "bull market" is when assets steadily rise over time. Although stock prices are rational, in that they are always fair and based on available information, it is hard for many to resist using emotional terms like "bulls" and "bears," which invoke the "animal spirits" of investing.
July 2022 | Volume 33
How can you tell when you're in a bear market? A prolonged drop in investment prices characterizes a bear market. It occurs when broad market indices fall by 20% or more from their most recent highs. Bear markets can occur for a market as a whole, such as the Dow Jones. Investors' pessimism and low confidence also mark a bear market. During a bear market, investors ignore any good news and continue selling quickly, driving prices down even further. In the event that investors are bearish on one stock, the sentiment may not affect the market as a whole. Nevertheless, when the market
turns bearish, almost all stocks fall, even if they are reporting good news and growing earnings.
What are the consequences of bear markets? In the 12 years since World War II, there have been three bear markets that did not precede a recession. Taken at face value there is some chance, if not a likelihood, of a recession in the near future when a bear market occurs. Two-thirds of the time, a recession is the result of the market's madness. The recent retiree is especially hard hit, since their nest egg shrinks at the
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