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In a bear market, securities prices fall substantially, and pessimism pervades Wall Street. Investors are more averse to risk, favoring perceived safer investments. It is the opposite of a bull market, in which consumer and investor confidence swing up. Bear markets are part of the business cycle and a sign of a sluggish economy. Fortunately, they usually do not last long, and bull markets outnumber bear markets by far. Learn how to detect the trends of a looming bear market.

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1. What Is a Bear Market?

A bear market occurs when stock prices drop at least 20% from its 52-week-high in one or more indices for at least two months.  Bear markets can happen in any sector or asset class. In stocks, investors watch the activity of the Dow, the S&P 500, or the NASDAQ Composite to measure a bear market. In bonds, analysts can observe a bear market in U.S. Treasuries, municipal bonds, or corporate bonds. Gold, currencies, and commodities can also experience bear markets.

bear market DNY59 / Getty Images
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