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Bear vs bull market: What’s the difference and which are we in now?

bulls vs bears definition

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bulls vs bears definition

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 the financial markets are greatly influenced by investors’ attitudes, these terms also denote how investors feel about the market and the ensuing economic trends.

An Overview of Bull and Bear Markets

The S&P 500 generated returns of 400.5% over 135 months from 2009 through 2020 as the economy recovered from the Great Recession and the markets kept pushing higher. Different factors contribute to a market downturn that eventually becomes a bear market. For instance, the S&P 500 tumbled 36% from 1968 to 1970 amid concerns about inflation resulting from U.S. military spending in Vietnam. When the dot-com bubble burst in 2000, it helped set off a bear market that would sink the S&P 500 by up to 49% over 56 months.

  • It is observed that bull phases last longer than bear phases, over a long-term trend.
  • During a bull market, there are several characteristics that can be observed.
  • If you’re looking to buy a house in 18 months, for example, you may not want to risk investing in a bear market.
  • Market researchers define a bear market as when prices fall 20% from a recent high.
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  • This bull market was characterized by strong earnings growth, low interest rates, and investor optimism.
  • Effectively, during the bearish periods, more units were bought and during bullish periods, the value grew.

In a bear market people are waiting for the bulls to start driving the prices up again. Predicting markets for investment purposes is a tough call for anyone, including market veterans. So, to make the most of both phases, investors can invest bulls vs bears definition gradually in a calibrated way that does not lead them to suffer steep losses. Yet sometimes the markets can behave differently from the larger trends. This is observed when we are investing in direct equity while choosing a stock.

What is a bear market?

A similar definition – but in the opposite direction – applies to bear markets. To be clear, there is nothing especially significant about the figure of 20% – it’s just a big number. Safeguarding your portfolio during a bear market typically means diversifying among different asset classes and business sectors. You might consider defensive stocks, bonds, or alternative assets that tend to have prices less correlated with changes in the broader market. You can also put in place stop-loss orders, rebalance your portfolio, and keep a cash reserve to provide you with flexibility and reduce potential losses in the event of a bear market.

  • Whether you’re bullish or bearish on animal metaphors, the bull and the bear are ingrained in the way we discuss the ups and downs of the market.
  • Put the same amount into the market each week or month, set a specific allocation for stocks and rebalance your portfolio when your stock portion exceeds your allocation target.
  • On average, bear markets tend to last a few months and the average drawdown during a bear market is around 30%.
  • This process allows you to take profits when bull markets are ripping and rebalance stocks when bear markets appear.
  • A similar definition – but in the opposite direction – applies to bear markets.

Since World War II, it has taken about two years on average for the stock market to recover, or reach its previous high. The most recent bear market, which started in March 2020, was exceptionally short, ending in August when stocks closed at record highs. The previous bear market, the Great Recession, on the other hand, didn’t see a recovery for about four years. In other words, bear markets can lead to opportunities for long-term investors to put money to work. This is not unlike those folks who buy up real estate during slumps in the housing market.

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Therefore, defensive stocks are stable in both economic gloom and boom cycles. These are industries such as utilities, which are often owned by the government. They are necessities that people buy regardless of economic conditions.

bulls vs bears definition

While bear markets can be scary, they are a natural part of the economic cycle and often lead to even stronger market returns. A diversified portfolio constructed for your financial goals can prepare you to confidently stay the course and weather any kind of market. That said, if you’re particularly concerned about stock market returns in retirement, you might opt for withdrawing only 3% of your portfolio. A financial advisor or tax expert can help you figure out the right withdrawal rate for your assets and risk tolerance.

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