A bear market is formally defined as a 20% or greater decline from recent peak levels, sustained over time rather than a brief correction. Bear markets are characterized by deteriorating economic fundamentals, falling corporate earnings expectations, rising credit spreads, and a pervasive shift in investor psychology from buying dips to selling rallies. Historical bear markets have ranged from sharp and short (the 2020 COVID crash recovered in months) to prolonged multi-year affairs (the 2000–2002 dot-com bust and 2007–2009 financial crisis). Defensive positioning during bear markets typically involves reducing exposure to high-beta growth stocks, increasing allocations to cash, bonds, and defensive sectors like utilities and consumer staples. Bear markets frequently end not when the economic news improves, but when pessimism becomes most extreme and the marginal seller is exhausted.
