Bull Market Vs Bear Market Definitions & Strategy

He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking Major World Indices issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines. In the end, there is no way to ensure gains in the investment market. All you can do is maintain strong investment tendencies and make prudent decisions.

The terms “bear” and “bull” are thought by some to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market. The comeback has mystified many investors, who didn’t dream the benchmark index could even come close to all-time highs in 2020 after its dramatic Covid-induced sell-off in March. But the index has, little by little, clawed its way back from a bear market.

Excel Shortcuts PC Mac List of Excel Shortcuts Excel shortcuts – It may seem slower at first if you’re used to the mouse, but it’s worth the investment to take the time and… The Dow Jones Industrial Average , also referred to as “Dow Jones” or “the Dow”, is one of the most widely-recognized stock market indices. He oversees editorial coverage of banking, investing, the economy and all things money.

In fact, this was the longest bull market period since World War II. If you’re unsure of how to rebalance your portfolio appropriately to match your timeline and willingness to take on financial risk, check out our guide to retirement savings here. You may also want to consult with a financial advisor to make sure you have the right diversification and investment mix. If you’re approaching the end of your investment timeline (a.k.a. you’re a few years away from your target retirement date), you have less time to recover from bear market dips.

If you’re ready to find an advisor who can help you achieve your financial goals, get started now. As your portfolio ages, you shouldn’t just leave it completely alone. This entails bringing your portfolio’s complexing back to your intended asset allocation. The necessity from this is derived from returns affecting your portfolio over time.

One of the most famous examples of a bear market takes the form of the 1987 market crash, which saw a 29.6% drop that lasted roughly three months. However, not all long movements in the market can be characterized as bull or bear. Sometimes a market may go through a period of stagnation as it tries to find direction. In this case, a series of upward and downward movements would actually cancel-out gains and losses resulting in a flat market trend.

Whether or not there is going to be a bull market or a bear market can only be determined over a longer time period. Although a bull market or a bear market condition is marked by the direction of stock prices, there are some accompanying characteristics that investors should be aware of. Although some investors can be “bearish,” the majority of investors are typically “bullish.” The stock market, as a whole, has tended to post positive returns over long time horizons. In the investing world, the terms “bull” and “bear” are frequently used to refer to market conditions. These terms describe how stock markets are doing in general—that is, whether they are appreciating or depreciating in value. And as an investor, the direction of the market is a major force that has a huge impact on your portfolio.

That’s why financial advisors recommend you revisit your portfolio many times over your life to adjust your portfolio allocation and to rebalance as needed. That may mean buying or selling different securities to maintain an appropriate mix of stocks, bonds and cash to meet your financial objectives and risk tolerance level. While you may be tempted to sell off your investments to avoid losing more money during a bear market, doing so locks in the losses you’ve experienced. You then have the difficult decision of figuring out when to reenter the stock market. In conclusion, in a bear market or bull market, we pretty much do exactly the opposite of what everyone else is out there doing. As Rule #1 Investors we love taking advantage of bull and bear markets.

Increased Buy And Hold

However, we know now that when the market began to decrease in value in 2000, known as the “.com” bubble burst, we were headed for a bear market, not merely a correction. Conversely, when the S&P 500 significantly increased in value from 2003 to 2007 we know that was a bull market. In other words, the markets rose 20% after a previous drop of 20%, and before another decline of 20%.

You should look at long-term investment strategies in a bull market as any losses will be short-lived. Stock prices are likely to continue their growth, so you should be looking at investments you can hold onto. When the economy is in an upswing, find low-risk funds to grow your money over time. A bull market, typically referencing stock indices, exists when prices are on the rise. While individual stocks can be bullish or bearish, if the price of the stock index – such as the Dow or S&P 500 – is generally rising, then it’s considered a bull market.

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Bull markets serve as an encouragement for investors or buyers, this period is not permanent but it can last for months or years. It describes a condition of the financial market where expected rise on increase in price will occur to a group of securities. An extended period when prices of large portions of securities rise in a stock market is a bull market. This term can also be applied in the real estate industry or commodities trade.

• But investors’ attitudes also have an effect on the stock market, creating a sort of feedback loop.
• But the expressions took on a more specific meaning among investors and stock traders, who understood the practice of speculating on an anticipated downturn.
• The stock market under bullish conditions is consistently gaining value, even with some brief market corrections.
• According to the investment company Invesco, the average length of a bear market is 363 days.

A down or a bear market can describe any asset classes affected by the economic cycle that can either gain or lose value over time. All of which are characterized by a cyclical rise and fall in prices across the four economic cycles – expansion, peak, contraction, and through. A cyclical, or a short-term bear market, on the other hand, is where prices decrease over a shorter time period, over a few weeks or months.

Usually, corrections only last a few months and don’t generally turn into bear markets. Ultimately, there are a large number of reasons why a market could take an extended downturn, and there usually isn’t a single cause when it comes to bear markets, but rather a combination of factors. The global financial crisis of 2007 to 2008 was the most severe bear market after the Great Depression, driven by the housing crisis and excessive risk-taking by financial institutions. The crash culminated with the bankruptcy of the Lehman Brothers in September 2008, creating a worldwide banking crisis. Businesses are also affected by the economic downturn, as when the overall consumer spending decreases and money becomes tight, productivity falls. Corporate profits start to decline, and growth stagnates, which leads to layoffs and budget cuts.

It also may be a good time to buy beaten down blue-chip companies that are poised to survive the bear market. A bear market rally takes place when the stock market posts gains for days or even weeks. This movement can easily trick many investors into thinking the stock market trend has reversed and a new bull market has begun. However, the stock market never moves in a clean, straight line, and these rallies amount to blips in an otherwise downward trend. Thus, it isn’t unusual for a bear market to experience days or months of upward momentum and turn downward again.

Though nearly a decade has passed, the housing market crash of 2008 is still a fresh wound for many people. In its wake, millions of workers lost their jobs, homeowners lost their houses, and consumer spending fell by 8%. Though we’re in a bull market now, we’re bull and bear market still feeling the effects of the crash and its subsequent bear market today. While it’s important to know the difference between a bear market and a bull market, it’s equally as important to know that they shouldn’t determine your whole investing strategy.

Bull And Bear Market Insight

Stocks tend to go up more than they go down over time, so it’s likely that you’ll see more bull markets than bear markets. Consider holding low-cost index funds for the long-term and know that ups and downs are to be expected. While bull and bear markets track back for decades, we’ve already experienced a couple key ones in the 20th century. For example, the 2008 financial crisis was driven by mostly by speculation and unsustainable debt in the real estate market, causing the stock market to rapidly drop.

The benchmark fell 37.8% until it hit its bottom of 7,286.27 on October 9, 2002. This bear market triggered the 2001 recession, compounded by the 9/11 terrorist attacks, which shut down stock exchanges and shocked the world. But a bull market is inevitably followed by a bear, or a period of declining prices. Investment By contrast, under this theory, a bear market refers to how a bear will swipe downward with its paw. However, while literature contains numerous positive references to bulls throughout Western canon, etymologists have found little sound evidence for this specific theory in any historical record.

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Those types of huge losses are a big reason why bears are feared and no investor ever feels safe, even if the market is still in rally mode and climbing higher. The S&P 500 is used to measure these milestones because it holds 500 of the nation’s largest publicly traded stocks and is viewed as a good barometer of the overall market’s health. Eric ReedEric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money.

Change In Economic Activity

Positive investor sentiment and over-speculation drove prices so high they were no longer justified. As investors kept buying into stocks in dot-com companies, supply started to overtake the demand. More businesses decided to go public, often without a proper plan, yet still lured investors to unprofitable companies. A bear market is where prices drop by 20% or more and usually last anywhere from months to several years.

The entry and exit of the investor get impacted, and hence investor sentiment plays a vital role in defining how long a bullish or bearish outlook exists. One cannot escape the withering of the scenarios, and thus a judgmental call has to be taken before making an investment, and patients should also be held to go through choppy market conditions as well. Will automatically get encouraged in a bullish market with the intention to expand the existing portfolio. However, in a bearish market, international investments may not be a favorable option for other countries, and such a move could be postponed to a futuristic date.

What Should You Do In A Bull Vs Bear Market?

In case an increase in price causes an increase in demand, or a decrease in price causes an increase in supply, this destroys the expected negative feedback loop and prices will be unstable. A bull market begins when investors feel that prices will start, then continue to rise; they tend to buy and hold stocks in the hope that they are right. The investors’ belief about stock prices influences the prices themselves in a self-fulfilling prophecy – where investors create market circumstances. A bull market has no specific definition, but is a sustained period when prices are rising and generally expected to keep doing so. Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low. A bull market can last for years as it did with stocks starting from the lows of the financial crisis in 2009 until the global pandemic hit in March 2020.

Author: John Divine