The term “bear market” has been thrown around a lot recently. Just remember, there is no such thing as an “official” bear market. The down 20 percent scenario is a generally accepted, albeit arbitrary, numerical milestone. It tells you nothing about the future direction of stock prices, and just because you see “bear market” plastered across the headlines you should not change your entire investment strategy. Be smart – use down markets as opportunities to save and invest when prices are low.
On Tuesday, when the Standard & Poor’s 500-stock index sank below 1100, market pundits were champing at the bit to declare that a bear market had officially begun. They had to eat their words before they could say them, as the market promptly jumped up by more than 5% by week’s end. Those who think they can predict bear markets, and anyone foolish enough to listen to them, might be humbler and wiser if they realized that the term “bear market” has been in flux for a century. Investors who rely on labels like “bear market” to guide their decisions are clinging to conventions with no real meaning. There is no such thing as an “official” bear market. For convenience, based on a rough consensus among analysts, The Wall Street Journal and others define it as a 20% decline from a closing high to a closing low on the Dow or the S&P 500.
Read the rest in the Wall Street Journal.