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Understanding the Differences Between Bull vs Bear Markets
If you are in your 20s, 30s or even your 40s and are investing for a far-off goal, like retirement, strive to hold onto your stocks and keep investing during any market. If you’re investing in a diversified portfolio, you crafted your investment strategy and holdings with both bull and bear markets in mind. A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance. A bear market is often caused by a slowing economy and rising unemployment rates.
What is a Bull Market?
Although a bear market can cause stock prices to fall, there are ways to limit the downside and even make money in a bear market. As investors sense a bear market coming on, this might be a good time to buy stocks, mutual funds and ETFs at a low price. Depending upon the depth and breadth of the bear market, there can certainly be some bargains to be had. Those investors who expect the prices to fall are called bears, and the sentiment is known as bearish.
A bear market is just opposite to a bull market, as in a bear market, the prices of the majority of assets, such as equity, real estate, etc., decrease. Negative economic data increases pessimism among investors, and they tend to be under-confident about the market’s future growth. In this blog, we will explain the concept of bull and bear markets, the key differences between them, and the investment strategies you can use in a bull market and a bear market. Markets have gone through both strong growth phases and sharp downturns, but history shows that bear markets are temporary, and bull markets eventually return. Next, let’s explore the key factors that influence these market cycles. Markets constantly fluctuate, and both bull and bear phases can be unpredictable.
You can protect your portfolio from bear markets by investing in defensive sector stocks, fixed-income securities, gold, etc. A bear market can last from a few weeks to several years, but on average, it lasts about 9.6 months. Bear markets are marked by a significant drop in stock prices, usually more than 20%. Market cycles are driven by a combination of economic conditions, corporate performance, investor behavior, and government policies. Understanding these factors can help investors anticipate market trends and make informed decisions. Throughout history, shifts in supply and demand have led to some of the most notable bull and bear markets.
- According to Forbes, however, a market is said to have entered the bull run when asset prices rise by 20% or more and continue to grow for weeks.
- Bull markets often correspond to periods of economic and job growth; bear markets are often tied to periods of economic decline and a shrinking economy.
- Gross domestic product increases as consumers increase spending and unemployment rates decline.
- Maybe it’s because bulls are known to charge wildly to get where they want.
Investing during a bull run means buying stocks when prices are nearing their highest levels. That does sound hefty, but you can make things easier by taking advantage of short-term price falls. Your best bet is to focus on high-quality assets (i.e., stocks in firms with steady revenue sources and reasonable debt levels). Utility providers and real estate companies are but a couple of examples here. You see bull markets and asset bubbles occurring with stocks and other investments such as bonds, commodities, and housing.
It takes much longer to recover from a bear market than it does for a bull market to reverse direction because investors and traders need more time before taking eightcap broker review high-risk trades again. When looking at market trends and the cycles, it’s important to remember that the market can and will change daily. It’s nearly impossible to predict when a bull will turn into a bear and vice versa.
However, if you stay invested through those peaks and valleys, history has shown that you can benefit from significant upside over the long run. The S&P 500 has experienced 29 bear markets since the late 1920s, and stock values have diminished by an average of around 35% in each of those periods. It’s also worth noting that in that same time frame of almost a century, there have been 27 bull markets.
How to Invest in Vanguard S&P 500 ETF
Both bull and bear markets have risk and potential opportunities – and investors have different strategies based on their perception of the market and potential trends. While stock markets use the standard 20% threshold, cryptocurrency markets typically require larger moves (30-40%) to confirm bull or bear markets due to their inherently higher volatility. This difference reflects the greater price swings common in crypto markets compared to traditional securities.
- We also offer real-time stock alerts for those that want to follow our options trades.
- For cryptocurrencies, the threshold is typically higher—often requiring 30-40% increases to confirm a true bull market phase.
- A bear market is when the stock market has lost over 20 percent in over at least a three month period.
- A bull market occurs when stock market indexes are rising, eventually hitting new highs.
- Those investors who expect the prices to fall are called bears, and the sentiment is known as bearish.
Historical Examples of Both Markets
The main thing to remember is that an overall general sense of optimism characterizes a bull market. And it’s this optimism that tends to catalyze greed, resulting in positive growth. Simply put, bull markets are characterized by a strong, aggressive upward move over some time. At its most basic, a bull is an investor who considers that the market is going to appreciate in value, while a bear thinks it will fall. Therefore, a bull market occurs when shares are rising and are expected to continue to rise, while a bear market occurs when shares are falling, and predicted to continue to decline.
Bull vs. Bear Market – Overview, Differences, and Factors
Seeing the value of your portfolio go down can induce anxiety, and investors can panic-sell at the bottom, sometimes just before a recovery. Make sure your decisions during bear markets are based on your understanding of your investments rather than on your fear that they will never recover. A bull market is a trend in the financial market in which the prices of assets, such as equity, real estate, etc., consistently rise, increasing investor confidence about the economy and market. With the price increase, investors tend to buy and hold securities to participate in the country’s economic growth. In general, if you had to choose one, bull markets are a better time to invest. You’ll have a greater chance of selling assets for a higher value than when you bought them.
Master Market Structure Trading: Shifts, Breaks, BOS, CHoCH, and Trends
The terms “bear” and “bull” are thought to derive from how each animal behaves. In contrast, bears hibernate, so bears represent a market that’s retreating. Because the businesses whose stocks are trading on the exchanges are participants in the greater economy, the stock market and the economy are strongly linked. There is no single factor that causes a bear market, but some of the most common causes in traditional markets include an economic recession, weak corporate earnings, and reduced consumer confidence. Knowing that markets move up, down, and sideways is the clearest indication that traders need different trading systems (the right tools) for different market types. Generally, a 20% decline from the recent highs can be considered a bear market.
In a bull market, strongly positive investor sentiment means more investing for profit, which drives share prices higher, in turn further improving sentiment. In contrast to bear markets where selling pressure is high, market behavior during a bull run tends to involve lots of upward pressure on stocks due to intense buying demand. A sustained bull run can also avoid volatility in terms of prices bouncing up and down, as instead they just trend up. In many cases, a bear market is an environment where market behavior drags down the vast majority of stocks, even ones with strong fundamentals. The market is said to be a bulls market when a rise of 20% in the whole sole performance of the stock market is observed. On the contrary, bears market is when the overall downfall of 20% in the performance, is noticed.
But by the time everyone agrees that point is reached, the bull market may not last too much longer. In fact, it often becomes more likely that the market becomes close to an inflection point when everyone recognizes a bull market. There can be a danger that if sentiment turns, everyone could rush for the exits and try to sell. So, in that sense, markets can charge higher, wildly and with great power, just like a bull. But declining markets can seem like a bear ransacking a town — their destruction makes people lose confidence.