In a bear market, "bears" refer to investors with a pessimistic outlook who expect prices to decline. What bears do in a bear market includes several behaviors and strategies:
- Bears anticipate that prices will continue to fall, often 20% or more from recent highs, with negative market sentiment prevailing.
- To profit from falling prices, bears may engage in short selling, which involves borrowing shares to sell them at current prices and aiming to buy them back later at lower prices to return to the lender, pocketing the difference as profit. This is riskier than traditional investing since losses can be unlimited if prices rise.
- Bears might also use inverse ETFs, put options, or sell futures to benefit from price declines.
- Generally, bear markets are marked by weakened economies, high unemployment, and declining investor confidence and optimism.
- Bears often contribute to a downward price spiral by selling stocks or avoiding buying, which fuels further declines and pessimism.
- Although bear markets are challenging, bear investors use them strategically to leverage falling asset prices.
So, in a bear market, bears act by taking positions that benefit from falling prices and reinforcing the market's downward trend through their pessimistic outlook and trading behavior. Bear markets typically last on average about 9.5 months, and bear behaviors are a natural part of market cycles. This explanation outlines what bears do and how they behave in a bear market context.
