Conversely, in a bearish market, the market sentiment is quite pessimistic and reflected by investors macroeconomics guide taking a lot of short positions. However, it is important to realize that short selling is also a great opportunity to make money. Seeing the value of your portfolio go down can induce anxiety, and investors can panic-sell at the bottom, sometimes just before a recovery.
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Regardless of the current state of the stock market, it’s important to stay focused on the long-term prospects of the companies in which you are invested. Companies with great business fundamentals are likely to produce significant returns for your portfolio over time. If you are a “buy-and-hold investor, you probably shouldn’t change your investing strategy based on prevailing market conditions,” said The Motley Fool. There are a few strategies to consider when investing in a bear or bull market. If you want to build a comprehensive plan, talking with a financial advisor may be helpful. The terms “bear” and “bull” are thought to derive from how each animal behaves.
Change in Economic Activity
- The longest bull market to date started in March 2009 and ran through February 2020.
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- The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term.
- High demand for products and services in bull markets can cause prices to rise, and shrinking demand in bear markets can trigger deflation.
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A bull market is when the price of a stock or the market rises over time. A bear market is when the stock market or the price of a stock falls. The bulls try to push the market up while the bears short it or push it back down. The market is a constant tug-of-war between the bulls and the bears.
Bull Market
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A bear market is defined as starting when stock prices broadly decline by 20% and keep trending lower. Bear markets are characterized by people losing their jobs, gross domestic product (GDP) declining, and the stock market losing significant value. Bear markets almost never last as long as bull markets and can create buying opportunities for investors. Bull markets typically happen alongside a growing or strong economy, a solid gross domestic product (GDP), rising corporate profits that lift stock prices, and lower unemployment. In the same way a bear market can shake investor confidence, a bull market can boost investor confidence, thus driving returns higher too. In a bullish market, investors are very optimistic, and this is reflected in investors taking long positions as they feel prices will rise further.
How do bull markets and bear markets differ?
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High demand for products and services in bull markets can cause prices to rise, and shrinking demand in bear markets can trigger deflation. A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value. Because investors’ attitudes greatly influence the financial markets, these terms also denote how investors feel about the market and the ensuing economic trends. The longest bull market on record for stocks occurred between 1990 and 2000.
Since 1942, there have been a total of 16 bull markets and 15 bear markets. The period assessed is from April 29, 1942, to March 28, 2024. Investing involves buying low and selling high, but it is impossible to predict market highs and lows. You may buy a depressed asset in a bear market only to watch the price fall even further. Depending on the company, the stock may never appreciate, and companies can go bankrupt during bear markets. A bull market is typified by a sustained increase in prices.
- The longest bull market on record for stocks occurred between 1990 and 2000.
- The worst of them was the crash in 1929, which lasted 2.8 years and saw a loss in value of 83.4% from the S&P 500.
- This is one of the great benefits of a market downturn and one of the key differences between bear markets vs bull markets for attentive and astute investors.
- Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator.
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A bull drives its horns upwards, while a bear usually swipes its paws toward the ground. Figuratively, these actions denote the movements seen in most markets. The chart below illustrates the performance of these three major indexes from the time the bear market began in early 2022 to the time of this article. That way, when markets rebound, as they always do, the investor does not have to “time the market” or find an optimal point in which to jump in.
This is an example of a bear market on the $SPY, which lasted for several months. However, two that come to mind would be a strong economy and high employment levels. When the market starts to rise, people get excited, somewhat irrational, and pour more and more money into the market. The use of ‘bull’ and ‘bear’ to portray market conditions stems from how these animals attack others.
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Are We Currently in a Bear or Bull Market?
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But why is a “bull” market considered a positive sign and a “bear” market a bad omen for investors? Maybe it’s because bulls are known to charge wildly to get where they want. Bears can charge, too, but they tend to destroy things, eating, rummaging and generally causing more damage than bulls. Big market swings in either direction can feel overwhelming, especially when you see the effect they have on your money. But crafting and adhering to a clear long-term investment strategy could help you ride out whichever way the market’s going. “Bear” and “bull” are two terms used to describe different parts of the market cycle, and they can tell investors a lot about what’s going on in the economy.