Characteristics of bear markets
During bear markets, prices decline, but often not in the same way that they rise. Some bear markets occur very quickly with years of gains wiped out in a few months. Sometimes prices don’t fall very far but remain depressed for a long time.
During a bear market, volatility increases, and prices fall much faster than they rise during a bull market. However, some of the strongest rallies, known as bear market rallies, can occur while the market is in a general decline. Bear markets are driven by fear, with long-term investors selling to avoid further losses to their portfolio. Bear market trading strategies are quite different from bull market trading strategies and focus on the fact that prices are driven by fear.
During bear markets, riskier assets fall the most. These include the currencies, bonds and stocks of emerging markets, as well as riskier stocks like small caps, growth stocks, and consumer stocks. Conversely, safe haven assets outperform as investors look for safer places for their money. The USD, CHF, JPY, and gold will often perform well at these times. Defensive stocks, including consumer staples, utilities, and healthcare stocks also perform better than the broader market.
While currencies don’t often appreciate very much for extended periods, they can lose a lot of value very quickly. During country-specific or regional economic crises, currencies can lose a huge amount. This happens when a vicious cycle of inflation, rising interest rates, and growing government debt causes investors to flee a currency.
The Zimbabwean Dollar lost more than 99.9% of its value between 1998 and 2009 as the economy collapsed and hyperinflation took hold. More recently the Venezuelan Bolivar, Argentinian Peso, and Turkish Lira have all come under pressure due to major economic problems in their respective countries.