What's A Bear Market? Most Define It As a 20% Drawdown

This chart shows the Dow Jones Industrial Average after today's sell-off. In this published idea, we want to take a second to write about bear markets and what they mean.

In the media, bear markets are officially defined as a 20% drawdown from a prior peak. Today, the Dow Jones Industrial Average closed down 20% from its prior peak. Technically, this means the market is officially in a bear market. There are some interesting stats, however, that show this definition has its flaws. For example, since the 1940s, the stock markets has dropped 20% or more 16 times and only 7 of those have turned into recessions. Sometimes, a 20% drawdown is just that... a 20% drawdown without a prolonged bear market that eventually leads to a full on recession.

This post is not making any assumptions or directional predictions. Instead, we wanted to share a chart with everyone showing the official 20% drawdown in the Dow Jones Industrial Average while also providing more context about market panics and crashes.

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