Everyone talks about bear markets; however, it is surprising that this downturn definition is so arbitrary. Commentators are somewhat cavalier with their discussion of bear markets. It is a down move of 20% from a high price point. A correction is a down move of 10%. A bear definition could be applied to an individual asset, a sector, or an asset class.
Bear markets do occur on a regular basis but there is little clarity on the cause. Bear markets have been associated with recessions, although stock markets usually decline before the dating of a recession. They have also been tied to central bank tightening shocks, but tightening is also tied to recessions. Bear markets are usually worse when there are high equity valuations. Commodity price shocks may generate a bear market and are also associated with recessions. There is a clear change in sentiment when the market perceives a bear environment; however, negative sentiment may just be the outgrowth of the market decline.
The only way to protect from a bear market is to ensure that you have a diversified portfolio with assets that are fundamentally uncorrelated with equity markets. Diversification across equities will only provide limited protection. Protection comes from holding unique asset classes or alternative investments that are not sensitive to the market risk factor.