Commodities

Bear market

| | Updated on: Nov 12, 2014
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The term “bear” has been used in a financial context since at least the early 18th century. The term is likely to have originated from traders who sold bear skins with the expectations that prices would fall in the future.

Bear market is a prolonged period in which investment prices fall, accompanied by widespread pessimism. As investors anticipate losses in a bear market and continue selling, pessimism only grows.

Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. It also occurs when supply exceeds demand, as is happening currently with major agricultural commodities such as corn, soyabean and wheat.

The most famous bear market in the US history was the Great Depression of the 1930s.

A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.

Though bear market denotes a shaky economy, long-term investors see it as an opportunity to buy stocks and commodities cheap.

In India, the stock market crashes of 1992 and 1994 (lasted 16 months each) and the infamous dotcom crash of 2000 (kept markets under pressure for 19 months at a stretch) are considered as examples for bear market.

Published on November 12, 2014

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