Bear Market Vs Bull Market: When Should You Invest?

what is the difference between bull and bear market

Market timing is notoriously difficult, and you never know when the market is going to hit its bottom. Regardless, while it’s easy to get caught up what’s happening in the market, experts generally suggest leaving your investments alone for the long haul. To avoid reacting to market fluctuations, refrain from looking at your portfolio often.

A declining unemployment rate is consistent with a bull market, while a rising unemployment rate occurs during bear markets. During bull markets, businesses are expanding and hiring, but they may be forced to lower their head counts during bear markets. A rising unemployment rate tends to prolong a bear market since fewer people earning wages results in reduced revenues for many companies. Whether the market is charging forward or retreating for a little nap, investors can learn to navigate the ups and downs. Investment of any kind comes with risk, especially as the economy fluctuates.

It’s not uncommon for analysts and observers to call a “bull market” when prices rise 20% or more from a previous low. However, there are many definitions of a bull market, with some saying one cannot be confirmed until the previous high has been taken out. 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.

It may also cause investors to sell their investments for less than they paid for them, which can hinder their abilities to reach their financial goals long term. 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. The economy benefits from higher consumer spending and increased business investments.

what is the difference between bull and bear market

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 gradually in a calibrated way that does not lead them to suffer steep losses. During a bear phase, the prices fall, and everything declines, leading to a downward trend. Investors believe that this trend will continue, and it prolongs the downward spiral.

The history of bull and bear markets

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.

Bears can charge, too, but they tend to destroy things, eating, rummaging and generally causing more damage than bulls. Bull markets tend to be longer than bear markets, although the duration can vary from a few months to several years. An investor may also turn to defensive stocks, whose performance is only minimally impacted by changing trends in the market. 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.

  1. 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.
  2. The previous bear market, the Great Recession, on the other hand, didn’t see a recovery for about four years.
  3. 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.
  4. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.
  5. However, not all long movements in the market can be characterized as bull or bear.
  6. But this lousy performance might be considered “bearish” over a much shorter period, such as one quarter.

In this scenario, the country’s economy is typically strong and employment levels are high. In contrast to the bull market, the SEC defines a bear market as a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.

What Lasts Longer, a Bull Market or a Bear Market?

Bull markets often indicate a general “up” period in the economy, especially if the business cycle is in the expansion or “normal” phase. GDP increases as consumers increase spending and unemployment rates decline. “Bull markets happen when the economy is strengthening, and stock prices are rising,” explains Bailey. “Bull markets are typically accompanied by a low number of individuals needing employment and investors who are flush with cash to buy into the markets.” As of June 2, 2023, the S&P 500 market index nears bull market territory as it is now up more than 19.7% since its bear market low last October. Bull markets are an exciting time to invest in the market, so if you don’t have a brokerage account already, now is the perfect time.

Let’s take a closer look at some typical hallmarks or signs of bull markets vs bear markets, and what investing strategies tend to be better suited for each one. 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. 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.

That generally means making your investments more conservative, or cash-, bond- and fixed-income-based, than you have before. 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.

what is the difference between bull and bear market

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. More specifically, however, a bear market describes any stock index or individual stock that drops 20% or more from its recent highs.

Change in GDP

On average, a bear market lasts around 1.3 years as reported by data from the University of Idaho. A bear market may be an indicator — but not a guarantee — of a possible recession. The U.S. stock market was in a bullish mode after recovering from the 2008 financial crisis until pandemic-related uncertainty caused a market crash in 2020. The chart below shows that, aside from minor market corrections, a bull market persisted for more than a decade.

What causes a bull market?

It’s a natural instinct to want to immediately respond to a loss in value, so skirt around that knee-jerk reaction by checking up on your investments as little as possible. One of the easiest ways to follow the state of the market is by tracking major indexes such as the Dow Jones Industrial Average or the S&P 500. If you notice these indexes are on a downward slope, then the market is likely shifting toward a correction or bear market. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Juzer Gabajiwala has over 20 years in the field of investments and finance.

As prices fall, fewer people invest and more people sell off, unwilling to risk losing money as no one knows how low the market will go. With less demand, stock prices decrease even more, which can create the same type of recursive cycle downward that bull markets do upward. According to the US Securities and Exchange Commission (SEC), a bull market is defined as a time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.

The more people spend on goods and services, the more money those businesses have to grow their business, create more jobs (which creates more consumer spending), and invest in new technologies. 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. In recent history, a recession has followed a bear market about 70% of the time. A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs.

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