What characterizes a bear market?

A bear market is characterized by a significant decline in asset prices, specifically a drop of 20% or more from recent highs. This condition typically reflects negative investor sentiment, along with broader economic challenges, leading to pessimism about future growth. In a bear market, decreased consumer confidence and increasing unemployment can further contribute to the falling prices, creating a cycle that can be difficult to reverse.

Comparatively, other market conditions do not reflect the characteristics of a bear market. A market with rising asset prices would signify a bull market, which reflects confidence and economic growth. Stability in asset prices indicates a lack of volatility, suggesting a neutral market rather than a bear market. A price decline of at least 10% is often considered a correction rather than a bear market, as it does not meet the threshold of the more severe decline that defines the latter. Thus, the defining feature of a bear market is indeed the 20% or more reduction in asset values.