What characterizes a bear market?

A bear market is characterized by a general decline in stock prices, typically defined as a drop of 20% or more from recent highs. This phenomenon often stems from widespread investor pessimism about the economy or financial markets. During this period, investors tend to sell off stocks to avoid losses, reflecting a lack of confidence in future performance. This selling pressure drives prices down even further, reinforcing the bearish sentiment.

In contrast, the other options describe different market conditions. For instance, when investors are optimistic and actively buying stocks, it signifies a bull market where prices are on the rise. Similarly, when prices are increasing and growth is expected, this indicates a thriving market rather than a bear market. Lastly, peaks in investment activity align with bullish trends, rather than the pessimism associated with a bear market. Hence, the description of investors being pessimistic and selling aligns perfectly with the characteristics of a bear market.