What is a bear market?

A bear market is characterized by a decline in prices, typically defined as a drop of 20% or more from recent highs. This condition indicates a general pessimism among investors, leading to sustained selling and a downward trend in market prices. Recognizing a bear market is crucial for investors as it impacts strategies for buying and selling assets, influencing decisions related to risk management and investment timing. This understanding is particularly important in the context of economic cycles, where shifts from bear to bull markets can significantly affect portfolio performance and overall market sentiment. The other options describe conditions that do not align with the attributes of a bear market, as they either address rising prices or stable price conditions, which directly contradict the concept of a bear market.