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The S&P 500 entered bear market territory in 2025, reflecting investor concerns amid rising tariffs and economic uncertainty.

Bear Market

It is a term used to describe a sustained stock market slump, but generally only after a major index — like the S&P 500 — falls 20% or more, according to the U.S. Securities and Exchange Commission (SEC).

It happens when the stock market drops, which means that investors are selling more stocks than they’re buying because they feel worried or unsure about the economy.

Recently, the S&P 500 (a group of 500 big US companies) fell into a bear market for the first time since 2022. This happened because US President Donald Trump didn’t back down from new tariffs, which made people nervous about how businesses would be affected.

The opposite of a bear market is a bull market, where stock prices go up by 20% or more from their recent low.

Why Do Bear Markets Happen?

Bear markets occur when investors feel scared or uncertain. Some common reasons are:

Weak Economy : If the economy slows down, people worry that companies won’t make as much money. For example, if car sales drop because fewer people can afford them, car company stocks may fall.
Recession Fears : A recession is when the economy shrinks for at least six months. Investors often sell stocks before this happens. For example, if people hear rumors of factories closing, they might panic and sell their shares.
Big Events : Wars, natural disasters, or oil shortages can scare investors too. For example, if oil prices spike because of a conflict, airline stocks could crash because fuel costs become too high.

Sometimes, bear markets happen just before a recession—but not always. In the US, only three out of four bear markets lead to recessions.

How Often Do Bear Markets Happen?

On average, US stocks enter a bear market every six years. When they do, these markets last about 18.9 months on average.

India has seen bear markets too. One of the worst ones happened during the 2008 financial crisis. Back then, the Nifty 50 (an Indian stock index) lost over 35% of its value in just two months.

Bear markets markets usually recover after some time. For example:

After the 2008 crisis, both US and Indian markets bounced back within a few years.
During the COVID-19 pandemic in 2020, global markets crashed but recovered quickly once vaccines were introduced.

Experts suggest keeping a long-term view instead of selling everything in a panic.

Source:

INDIAN EXPRESS

PRACTICE QUESTION

Q. Which central bank action could unintentionally deepen a bear market?

A) Lowering interest rates to stimulate borrowing and investment.
B) Raising interest rates to combat inflation, tightening liquidity.
C) Launching a bond-buying program to inject capital into markets.
D) Reducing reserve requirements to boost bank lending.

Answer: B
Explanation:
Raising interest rates tightens liquidity, increases borrowing costs, and reduces corporate profits, further depressing stock prices. In a bear market, this signals tighter monetary policy, eroding investor confidence and deepening declines.

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