What is the key characteristic of a bear market?

A bear market is defined primarily by a significant decline in stock prices. Specifically, it is characterized by stock prices falling by 20% or more from their recent highs over a sustained period. This decline reflects widespread pessimism among investors and a corresponding drop in market confidence.

When stock prices experience this level of decline, it often triggers a shift in investor sentiment, leading to further selling and exacerbating the downward trend. This characteristic is crucial as it indicates not just a temporary drop (which can occur during corrections), but a more severe and prolonged downturn in market conditions, often associated with economic recessions or negative economic indicators.

In contrast, a decline of only 10% might indicate a short-term correction rather than a bear market. Anticipating stable returns, on the other hand, does not capture the essence of a bear market's dramatic price movements. Lastly, while rising interest rates and inflation can contribute to the conditions leading to a bear market, they are not definitive characteristics of one. Thus, the specific metric of a 20% decline from recent highs is the key defining element of a bear market.