Bull Vs Bear Markets & What They Mean For Investors

The stock market can be bearish even while bull markets are occurring in other asset classes and vice versa. If the stock market is bullish and you’re concerned about price inflation, then allocating a portion of your portfolio to gold or real estate may be a smart choice. If the stock market is bearish, then you can consider increasing your portfolio’s allocation to bonds or even converting a portion of your portfolio into cash. You can also consider geographically diversifying your holdings to benefit from bull markets occurring in other regions of the world. A retracement is a brief period in which the general trend in a security’s price is reversed. Even during a bull market, it’s unlikely that stock prices will only ascend.

• That is, a bull will thrust its horns up into the air, while a bear will swipe down.
• And though there’s no set way to identify a bull market, it typically means that asset classes of all types — such as stocks, bonds, real estate — rise for an extended period of time.
• As the Federal Government plays ping pong with Social Security, I too must look towards myself for my financial safety net.

The negative share balance must be brought back to zero at some point by buying back the 100 shares. In the stock market, there are more restrictions on which stocks can be shorted and Underlying when. Being long, or buying, is a bullish action for a trader to take. Put simply, being a bull or having a bullish attitude stems from a belief that an asset will rise in value.

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%. The conditions of a bull market include low unemployment, high GDP, and rising stock prices. The investments made during a bullish scenario are either sold, preventing further downsides, or holding back to them for future usage. It may give rise to hoarding and black marketing situations. While bull and bear markets track back for decades, we’ve already experienced a couple key ones in the 20th century.

How Do Bull Markets And Bear Markets Differ?

Warning signs that a bear market might be coming shouldn’t lead you to change your investment strategy. Instead, ensure that your portfolio is funded with money you won’t need for the next five years, and is both well-diversified and aligned with your risk tolerance. Doing so means you’ll likely ride out the highs and lows of the market better than someone who is trying to time it.

Among investors the term “bearskin trader” and eventually just “bear trader” came to refer to someone who traded stocks the same way disreputable fur traders dealt in pelts. The term bull originally referred to speculative purchases rather than general optimism about prices and trend lines. When the term first came into use it referred to when someone grabbed a stock hoping it would jump up. Later, as years went on, the term evolved to refer to the individual making that investment. It then eventually transferred to the general belief that prices will rise.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading. But there are steps investors can take to prepare for market turmoil and insulate their portfolios. For example, keep an eye on indicators such as Treasury yields or the Cboe Volatility Index for signs of escalating concern among market professionals.

How To Take Advantage Of A Bull Market

The previous bear market, the Great Recession, on the other hand, didn’t see a recovery for about four years. Most experts agree that a bear market is one in which securities prices have fallen 20% from recent highs, if not more, spawning widespread pessimism from investors. Bear markets can certainly be scary times for investors, and nobody enjoys watching the value of their portfolios go down.

We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Perhaps the most popular origin story for bull vs bear markets comes from how the animals physically attack. A bull thrusts its horns upwards, while a bear swipes its claws downward. Most people think of trading as buying at a lower price and selling at a higher price, but that’s only part of what traders do. Traders can also sell at a high price and buy back at a lower price.

Definitions Of Long, Short, Bullish, And Bearish

We’re not zoologists, but bulls tend to use their horns to thrust upward, while bears push down with their paws. That imagery has become symbolic of the movements of the market — Now you can just picture a majestic bull lunging up when a stock is rising, or a powerful bear smacking down when a market falls over time. By the 18th century, the phrase “bear-skin jobber” had become a pejorative for sellers, especially the disreputable ones who actively bet that prices will fall. “Thus every dissembler, every false friend, every secret cheat, every bear-skin jobber, has a cloven foot,” Daniel Defoe wrote in 1726. The term was popularized during the one of the world’s first huge market crashes, the South Sea Bubble of 1720. If you’re new to investing, or if you’d just like a helping hand along the way, it’s a good idea to consider Mint investment monitoring.

This is in contrast to a correction, which is a fall of at least 10% and tends to be much shorter lived. But when they do, the bear market results in an average decline of 32.5% from the market’s most recent high. Growth stocks in bull markets tend to perform well, while value stocks are usually better buys in bear markets. Value stocks are generally less popular in bull markets based on the perception that, when the economy is growing, “undervalued” stocks must be cheap for a reason.

Since bull markets are difficult to predict, analysts can typically only recognize this phenomenon after it has happened. A notable bull market in recent history was the period between 2003 and 2007. During this time, the S&P 500 increased by a significant margin after a previous decline; as the 2008 financial crisis took effect, major declines occurred again after the bull market run.

Characteristics Of A Bull Market

It might help to think of a charging bull raising its horns to remember that to be bullish is to expect prices to charge higher. While bull markets generally don’t cause people too much stress, bear markets often inspire anxiety and uncertainty. How you should handle a bear market, though, is dependent on your investment timeline. Historically, bear markets tend to be shorter than bull markets. The average length of a bear market is just 289 days, or just under 10 months. A bear market is when stock prices on major market indexes, like the S&P 500 or Dow Jones industrial average, fall by at least 20% from a recent high.

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 bull vs bear market difference retirement date), you have less time to recover from bear market dips. While we know the market historically has recovered from each bear market, you may not have the average two years for your investments to return to their previous values. While you should try not to sell during a downturn, a bear market may also provide a reminder to revisit your investing strategy once the market recovers.

What Is A Bear Market, And How Should You Invest In One?

Listed SecuritiesListed security refers to a financial instrument such as stocks, bonds, derivatives, etc., registered with and readily tradable on the stock exchanges like NASDAQ and NYSE. History of the stock market has proved, the economy will recover, and your holdings will begin to appreciate again. It’s important to note that it’s not truly considered a “bear” market unless stocks have fallen 20% or more. 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.

For an in-depth understanding of bull markets vs bear markets, and how these trends affect the activities of investors, read through our guide. A bear market is often caused by a slowing economy and rising unemployment rates. During this period, investors generally feel pessimistic about the stock market’s outlook, and the changes in the stock market may be accompanied by a recession. But a bear market doesn’t always indicate that a recession is coming. In recent history, a recession has followed a bear market about 70% of the time. Bull markets occur when there is a sustained rise in stock prices, and they are typically accompanied by elevated consumer confidence, low unemployment, and strong economic growth.

How To Invest During A Bear Market

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For most Americans, this principally includes retirement, along with vacations, buying a home and more. By defining your goals, you can make investment decisions based Eurobond on them. But the expressions took on a more specific meaning among investors and stock traders, who understood the practice of speculating on an anticipated downturn.

Phil is a hedge fund manager and author of 3 New York Times best-selling investment books, Invested, Rule #1, and Payback Time. He was taught how to invest using Rule #1 strategy when he was a Grand Canyon river guide in the 80’s, after a tour group member shared his formula for successful investing. Phil has a passion educating others, and has given thousands of people the confidence to start investing and retire comfortably.

Author: Tammy Da Costa