All over the news we are hearing the same rhetoric all over again with headlines reading – ‘bear market approaches’, ‘2008 looming’ and several others.
Apart from the fact that economy around the world is no where near to what is was in 2008, we need to understand exactly when the markets do enter into a bear market territory.
First of all, the market first enters what is known as a ‘correction’ which as the name suggests, the prices are correcting themselves to a more stable and desirable level.
This generally happens when markets are somewhat overvalued and for it to take place, the prices need to drop at least 10% from their prior peak. Corrections are very common and are a natural part of every bull market.
Bear markets on the other hand are defined as declines of 20% or more from their prior peak.
Where are we now?
As we can see from the chart below, the S&P 500 is currently around 4.5% away from a correction. The price still needs to drop to 2,637.
On the other hand, it needs to drop a further 15% from the current level to enter into a bear market. (price needs to drop below 2,344 level).
Do you want to know how you can gain in a downmarket. Read our article here