This article covers all the important things you need to know about a bearish financial market.
Bearish markets are what you get when a certain financial market navigates through an extended reduction in prices. It generally depicts a certain scenario in which values of assets shoot down by about a margin of 20 percent from higher points.
People associate a bearish market with a reduction in a market index such as the NASDAQ. However, you can also consider assets to be in bearish markets if they go through a reduction of twenty percent or more over a continued time period (generally 60 days). A Bearish market may go together with typical economic declines as well, such as a credit crunch.
Bearish Market Stages
The following are the four stages that bearish markets go through:
1st Stage
Higher emotional levels of investor and skyrocketing price characterize this 1st bearish market stage. When this particular stage is towards ending, the investor parties begin to pocket gains and move back from financial markets.
2nd Stage
Every value of stock starts to slide down in the 2nd stage sharply. Apart from that, trade-related activities and gains that corporations make begin to come down, and an indicator that measures the economy begins to become lower than average. As emotional levels alleviate, some groups of regular investors start panicking (called capitulation).
3rd Stage
The 3rd stage highlights that several speculators begin to come into the financial market, and shooting up of amounts of trading is the consequence.
4th Stage
In the final phase that characterizes a bearish market, the value of stocks carries on going down gradually. As reduced prices appeal to most of the investor parties once again, each bearish market shifts towards a bullish market.
A Recent Bear Market Example
Earlier this year, in the month of March, the Dow Jones market index recently transitioned into a bearish market on the 11th of the month, and a day later, the S&P 500 market index shifted to a bearish market as well. The Coronavirus repercussions led to the lowering of the stock prices as a direct cause of the dispute between the Russian nation and Saudi Arabia. In that particular time period, the Dow Jones market steeply came down from nearly thirty thousand to lower than a stunning twenty thousand in just a matter of a few months.
