What is a bear market?
Last updated August 2026
Short answer
The 20% line is arbitrary in the way most useful thresholds are. Nothing changes at 19.9%, and everything about how people behave changes somewhere in that region.
The definition, precisely
A broad index, not a single stock. One company falling 40% is a bad quarter for its holders and not a market condition.
A decline of 20% or more, measured from a recent peak.
Sustained over at least two months, which distinguishes a bear market from a sharp panic that reverses within weeks.
How they usually feel
Declines rarely arrive as one dramatic drop. They come as a sequence of falls interrupted by recoveries convincing enough to look like the end.
Those interruptions are where the damage happens. Investors who held through the first two legs sell during the third.
The news flow is worst near the bottom, because prices reflect the news that has already arrived and people extrapolate from it.
Why selling is so expensive
Exiting requires a second decision that is harder than the first, because re-entry never feels safe until prices have already recovered.
The strongest single days cluster inside the worst periods, often within days of the largest falls. Being out for a handful of them removes a large share of long-run return.
In a taxable account, selling appreciated positions also realises gains and creates a tax bill that no recovery refunds.
Try it in Walnut
Walnut reads your connected brokerage and can show what a decline of a given size would do to your actual positions, before one arrives.
What is worth doing
Keep scheduled contributions running. They buy more shares per dollar at lower prices, which is the one mechanical advantage available.
Rebalance back to target. After a fall the equity share is below target, so the rule says buy, which is the correct action and the hardest one.
Consider harvesting losses in a taxable account, minding the 30-day wash sale window on anything substantially identical.
Preparing before the next one
Set an allocation you could hold through a 40% decline, which usually means less equity than a good year makes attractive.
Keep near-term money out of the market entirely, so a downturn never forces a sale at the worst moment.
Write down the plan while things are calm. A rule made in advance is the only part of this that survives the actual event.
What history says about recovery
Every US bear market so far has ended, and the index has gone on to exceed its prior peak. That is a statement about the past rather than a guarantee, and it is the basis on which long-horizon investing rests.
Recovery times have varied enormously, from months to years, and the average conceals both extremes. Somebody who needed the money during the slow ones did not get to wait for the average.
The practical reading is not that declines are harmless. It is that they are survivable if your horizon and your allocation were honest with each other beforehand.
Sources
The definition is from the SEC glossary entry for Bear Market at investor.gov. The wash sale rule is in IRS Publication 550. Walnut is informational and is not an investment adviser. This guide is educational and not personalized investment advice.
FAQ
What is a bear market?
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The SEC describes it as a time when stock prices are declining and sentiment is pessimistic, and states that generally a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.
What is the difference between a correction and a bear market?
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Size. A correction is conventionally a decline of about 10%, a bear market 20% or more. Corrections are common and frequently brief; bear markets are less common and take longer to recover from.
How long do bear markets last?
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There is no fixed length, and they have historically ranged from a few weeks to well over a year. The one certainty available in advance is that nobody identifies the bottom while standing in it.
Should I sell during a bear market?
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Selling requires being right twice, on the exit and the re-entry, and the strongest days tend to cluster near the worst ones. Missing a handful of them does lasting damage. The better question is whether the allocation was right before the decline started.
Does a bear market mean a recession is coming?
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Not necessarily. The two often overlap but they measure different things: a bear market is about asset prices, a recession about economic activity. Markets have fallen 20% without a recession following, and have sometimes bottomed while one was still running.
What is the one useful thing to do in one?
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Keep contributing if you can, since scheduled buying during a decline purchases at lower prices. Beyond that, rebalancing back to target is the mechanical action, and in a taxable account harvesting losses can be worth something.
Have bear markets always recovered?
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Every US bear market so far has ended with the index eventually exceeding its prior peak, which is a fact about the past rather than a promise. Recovery times have ranged from months to years, and the range matters more than the average if you need the money.