Ace the AFP Exam 2025 – Boost Your Financial Wizardry!

A bear market signifies a period where stock prices are in decline, specifically characterized by a drop of 20% or more from recent highs. This term reflects overall pessimism in the market, where investors expect further declines, leading to a self-reinforcing cycle of selling. During a bear market, investor confidence diminishes, and economic indicators may point toward a contraction rather than growth, resulting in lower consumption and investment. This understanding is crucial for investors as it can influence investment strategy, risk assessment, and overall market outlook.

Other options describe different market conditions: a rise in stock prices aligns with a bull market and stability with little volatility under a flat or range-bound market. Additionally, a neutral market refers to a scenario where prices don't show significant movement in either direction. Thus, recognizing the characteristics of a bear market helps in grasping broader economic trends and inform decision-making in financial contexts.