After three painful days on Wall Street, there are growing concerns that stocks will enter into a “bear market.” Here is what that is and why it matters.

Stocks have been sliding since President Donald Trump announced extensive 10% tariffs on all imports and, in some cases, higher tariffs on certain countries based on trade deficits. Nearing midday Monday, the S&P 500 was down over 1% and has shed about 10% of its total value in the past five trading days.

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The steep plunge in equity prices has sparked fears that a bear market is coming, an ominous sign that indicates declining investor confidence.

What is a bear market?

In simple terms, a bear market is triggered when the stock market has fallen more than 20% from its most recent high. Conversely, a bull market is when the opposite occurs and stocks are up 20% from recent lows.

Bear markets can occur for several reasons, such as inflation running too hot or interest rates rising. They can also happen because of major geopolitical events or shocks to the global economy, such as the COVID-19 pandemic in 2020.

But this time, equities are falling almost entirely in response to Trump’s decision to rework international trade policy and implement tariffs. Stock markets, not just in the United States but across the globe, have plunged, given how interconnected the worldwide economy has become.

Bear markets signal market pessimism and expectations of an economic downturn. They also can indicate that investors expect a recession is on the horizon, something that economists say is increasingly likely.

JP Morgan analysts put the chance of a global recession at 60% over the coming year if the tariffs are sustained. That is up from 40% before Trump announced the sweeping tariffs. Goldman Sachs just increased its projected odds of a recession from 20% to 45%.

Prediction markets are even weighing in, with Polymarket users pegging the odds of a 2025 recession at nearly 60%.

How close are we to a bear market?

U.S. stocks are quickly approaching a bear market but have not yet entered one.

The last high for the stock market came in late February. The benchmark S&P 500, which is typically used as the barometer index for bear and bull markets, is down more than 17% from its most recent high.

If the S&P closes down at least 3.1% on Monday, it would trigger a bear market. Of note, the S&P 500 was down about 1.7% midday Monday.

When was the last bear market?

The last bear market began in early 2022, when inflation heated up to its highest levels in decades and the Federal Reserve was forced to begin hiking interest rates.

Many economists predicted a recession amid the last bear market, with some models even putting the odds at near certain. However, one never emerged, and the market ended up climbing back to new highs.

Before that, the pandemic shock resulted in stocks plunging and the S&P 500 shedding nearly 34% of its value. But that bear market only lasted about a month and stocks, driven by interest rates at near-zero, recovered within five months.

Why does it matter?

Bear markets are unwelcome news for investors, but they also have repercussions for average consumers.

Dan North, a senior economist with Allianz Trade Americas, told the Washington Examiner that when retail investors try to time the market because they think it is the right time to get in or out, they usually lose. He said a typical mistake for rookie investors is selling when stocks are low.

“The professionals know that to hang on, you have to ride out the markets because this is what happens,” North said. “You get a bear market every four or five years — you can’t time getting in and out, or you’ll probably lose.”

Of note, the stock market has always gone back up after a bear market, and while long-term investors have the time to hold on, North said investors who might be nearing retirement and have a lower risk tolerance should probably not have most of their portfolio in equities.

North said one rule of thumb for older investors is to take 100 and subtract their age to calculate how much exposure their portfolio should have in the stock market. So someone who is 70 years old might want to have only 30% of their total portfolio in stocks.

But for the average consumer, the start of a bear market could indicate some coming pain. That is because when a bear market shows up, the economy is typically headed for a recession, North said. He emphasized that is not always the case, though.

The main indicator of a recession is declining gross domestic product followed closely by the labor market.

A historical rule of thumb is that two consecutive quarters of negative GDP growth constitutes a recession, although that is not always the case.

While GDP growth has been positive for some time, economists predict that it will slow this year. But the Atlanta Fed’s “GDPNow” tracker predicts that GDP growth in the first quarter will be negative.

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More concerning, a recession could be marked by an uptick in the unemployment rate, which sits at 4.1%.

“The U.S. economy has entered onto a dangerous path, and the further it goes, the larger the risk of lasting damage,” Comerica Bank chief economist Bill Adams said. “While the unemployment rate is low, private hiring is sluggish. That makes it easier for an economic shock to cause an uptick in unemployment since there’s less capacity for layoffs in one sector to be offset by hiring in another.”