Stock trader in a bear market
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The Nasdaq Corrects: What Are the Best Bear Market Plays?

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Jan. 25 2022, Published 2:40 a.m. ET

After strong double-digit percentage returns for three years, U.S. stock markets have looked weak in 2022, and the Nasdaq is deep in correction territory. What are the best bear market plays now?

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U.S. stock markets entered a bear market in Q1 2020, ending the longest bull market in history. Later that year, they recovered from COVID-19 uncertainty and hit new highs.

What's a bear market?

In a bear market, investors are less willing to take risks, selling with every increase. An asset is said to be in a bear market when it falls 20 percent or more. Bear markets aren't common, and there have been only four since 1974.

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Are we headed for a bear market?

We can never be certain whether we're headed for a bear market, but given the geopolitical tensions and fears of rate hikes, a bear market could be likely. Growth is also slowing down, with tech companies finding it difficult to repeat the stellar growth they reported over the last two years. Tech stocks' rich valuations aren't helping matters.

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How to invest in a bear market

In a bear market, you should to reassess your risk-return appetite and take a holistic view of your portfolio. As stocks crash, it's key not to panic, but to instead rebalance your portfolio carefully.

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Which stocks to buy in a bear market

Bear markets can open opportunities to buy quality stocks to hold for the long term. Currently, Apple and Facebook look attractive, though they could see some volatility.

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If you're looking at a tactical portfolio allocation to shield your portfolio, consider defensive stocks, high dividend names, and consumer staples companies. These stocks could do well in a bear market.

Defensive stocks to buy in a bear market

Pfizer is one stock to consider. The company is benefiting from its COVID-19 vaccine sales in the short term, while its strong product pipeline will be a key long-term driver. Its dividend yield of 3.1 percent also looks tempting.

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In the consumer staples space, General Mills looks like a good bear market play. The stock has a dividend yield of almost 3 percent and is trading near its 52-week highs. The company has been increasing prices to pass on higher input costs, which should boost its earnings in 2022.

Coca-Cola could be another good defensive play. The stock has a dividend yield of 2.8 percent and has been part of Berkshire Hathaway’s portfolio for years.

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