What typically occurs in a bear market?

In a bear market, the defining characteristic is that the stock market is generally declining, typically by 20% or more from recent highs. This downward trend reflects investor pessimism and lower confidence, leading to widespread selling of stocks. This environment often results in a negative sentiment surrounding the economy and can be associated with broader economic issues, though it does not necessarily mean that the economy is officially in a recession.

While it is not uncommon for economic indicators to decline during a bear market, indicating a recession, it is crucial to understand that the focus here is specifically on the stock market's performance. Investors often respond to bear markets by pulling money out of stocks and increasing their focus on safer assets.

In such conditions, demand for bonds can rise as investors seek to protect their capital from volatility in the stock market, but the increase in bond demand is a response to the bear market rather than a defining feature of it. On the other hand, stocks rising in value is contrary to the very nature of a bear market. Thus, the best description of what occurs in a bear market is that the stock market is generally declining.