By WSJ Staff

Last week, the Nasdaq Composite index fell into what investors call a bear market. If you are just tuning in or watching your retirement savings shrink, here is what you need to know about the decline.

What is a bear market?

When an index such as the Nasdaq, S&P 500 or Dow Jones Industrial Average sinks 20% from a high point, it is judged to have entered a bear market. There is nothing official about the determination. The designation is a shorthand way for Wall Street to mark when markets have taken a tumble. It also gives investors a moment to reflect on how the current action in markets compares with previous downdrafts.

A bear market is the opposite of a bull market, when an index or security has risen 20% from its recent low.

Are we in one now?

Yes and no. The tech-heavy Nasdaq closed down more than 20% on Friday from its record set Dec. 16, so it is now in one. The Russell 2000 index of smaller stocks also fell into a bear market last week.

But broader blue-chip indexes-the S&P 500 and the Dow industrials-aren't there, at least not yet.

What would put the Dow or S&P 500 into a bear market?

As of Tuesday's close, the S&P 500 was down 18.9% from its Feb. 19 high, while the Dow was off 16.4% from its Dec. 4 record.

In points terms, the bear-market thresholds to watch are 4915.32 for the S&P 500, and 36011.23 for the Dow.

What's the difference between a bear market and a recession?

Often a bear market precedes a recession. But a bear market just describes a decline in the value of stocks or other securities, while a recession is a general decline in a country's production of goods and services, measured usually as two consecutive quarters of shrinking growth as determined by the National Bureau of Economic Research.

What is a correction?

A correction is a drop of at least 10% in the price from the most recent peak. While it wipes the value off a stock, bond, currency or commodity, many investors view corrections as a signal to buy at a lower price.

Where did the term 'bear market' come from?

Anatoly Liberman, a linguist at the University of Minnesota, says the use of "bull" and "bear" to refer to financial optimists and pessimists, respectively, originated in Britain in the early 18th century. "Bull" evoked the bellowing of an eager buyer. "Bear" appears to have come from an early proverbial expression, "to sell the bear's skin before one has caught the bear."

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April 09, 2025 10:28 ET (14:28 GMT)

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