Bullish vs Bearish Difference, Characteristics, and How to Invest

Towards the end of this phase, investors begin to drop out of the markets and take in profits. A bear market is a financial market experiencing prolonged price declines, generally of 20% or more. A bear market usually occurs along with widespread investor pessimism, large-scale liquidation of securities and other assets, and a weakening economy. Regardless of the current market we’re in, the standards of strong portfolios remain constant. The first thing you should have in order when it comes to investing is your ultimate financial goals. For most Americans, this principally includes retirement, along with vacations, buying a home and more.

Which of these is most important for your financial advisor to have?

For instance, in the last two decades, over half of the S&P 500’s strongest days happened during 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 a bull market, high GDP growth is anticipated, and as economic demand rises, so does industrial output, sales, and turnover. Think of a bear clawing down on its prey to help you recall that “bearish” refers to falling prices. A bullish investor, for example, believes that the share price of XYZ Corp. will increase. For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they’re looking for the right insurance policies or trying to pay down debt.

With less demand, stock prices decrease even more, which can create the same type of recursive cycle downward that bull markets do upward. While bear markets signal a time of pessimism and economic decline, a bull market is defined by optimism and economic growth. A bull market is a period when stock prices are rising and investor sentiment is positive. 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. For most investors, a buy-and-hold strategy is the best way to make money through investing, rather than rushing to buy or sell investments every time the market changes. If you have a balanced, diversified portfolio that includes assets such as government bonds, defensive stocks, and cash, as well as equities, you shouldn’t need to sell during a bear market.

Seeing the value of your portfolio decline sharply can be distressing, but it’s important to remember that bear markets are normal. The stock market is cyclical, so while it may be tempting to sell your stocks when the market is down to protect some of your money, that strategy could hurt you over the long haul. Since 1709, the financial world has embraced bears as the mascot for periods when stocks fall on hard times.1 But just because many investors are fearful of bear markets doesn’t mean you need to be. Stock prices generally reflect how investors expect companies to perform. If a company has lower-than-expected profits, or experiences less growth than analysts predicted, investors may respond by selling the company’s stock, which makes the overall price decline. The combination of herd behavior and fear can create a rush to minimize losses, which in turn can lead to prolonged periods of depressed asset prices.

The Bottom Line on Investing Through Bear and Bull Markets

Remember that over the long term, the stock market has always posted a positive return. Because the market’s behavior is impacted and determined by how individuals perceive and react to its behavior, investor psychology and sentiment affect whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent. In a bull market, investors willingly participate in the hope of obtaining a profit.

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For stocks, it’s important to remember that these are part of your long-term investment plan and you’ll experience both types of markets during your investing life. Stocks tend to go up more than they go down over time, so it’s likely that you’ll see more bull markets than bear markets. Consider holding low-cost index funds for the long term and know that ups and downs are to be expected. A bear market is when stock prices on major market indexes, like the S&P 500 or Dow Jones industrial average (DJIA), fall by at least 20% from a recent high. This is in contrast to a market 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.

This term also applies to any financial asset and could be used to describe an outlook for an individual stock such as Nvidia, or stocks in general. To help remember that bearish means falling prices, think of a bear clawing down on its prey. Both bear and bull markets will have a large influence on your forex and cfd trading on stocks, indices, oil, gold by xm investments, so it’s a good idea to take some time to determine what the market is doing when making an investment decision.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Both bullish and bearish markets have their own distinct characteristics that make them different from one another. Another option for an investor is defensive stocks from companies usually owned by the government. Conversely, a portion of the industrial and production units are impacted by the slow economy during a bear market. In a bull market, the production rate is increasing and is favorable for wholesalers due to forex crm forex brokerage software the rising demand. When someone is bullish, they anticipate price increases over a specific time frame.

1. For instance, someone nearing retirement may want to steer clear of individual stocks since they can be quite volatile.
2. Numerous strategies exist to accomplish this, such as selling short, purchasing put options, or purchasing inverse exchange-traded funds (ETFs).
3. It’s important to note, though, that even during bear markets, the stock market can see big gains.
4. Look at your current investment performance in the context of your goals and investing timelines.
5. However, not all long movements in the market can be characterized as bull or bear.

Buy-and-hold investors can often take advantage of lower prices during a bear market to add valuable stocks to their portfolios. Day traders and other short-term investors, though, may need to use strategies such as short selling, put options, and inverse ETFs to make a profit during a bear market. In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull 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.

Notably, the research that established the 4% Rule found this to be true through both bull and bear markets. That’s why financial advisors recommend you revisit your portfolio many times over your life to adjust your portfolio allocation and to rebalance as needed. 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. 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.

During your lifetime, you can expect to live through approximately 14 bear markets. Historically, the US stock market has recovered from every bear market, often making sizable gains in the months immediately following the downturn. Their performance is mostly unaffected by changing market trends because they often sell necessities.

On average, bear markets in the U.S. have lasted 289 days (around 9.50 months). In contrast, bull markets have lasted, on average, 2 years and 8 months. A bear can profit from being right about this by selling stocks or ETFs short in the market. This involves borrowing shares and then selling them, hoping to buy them back lower and return the shares to the lender. There are also inverse ETFs and mutual funds that rise when markets fall.

The term applies to broad market indexes such as the S&P 500, specific industries, entire asset classes such as real estate or commodities and even individual stocks. 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. 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. Bull markets tend to be longer than bear markets, although the duration can vary.

But it’s difficult to determine if the economic benefits are the reason for or the asp net core web api development with onion architecture using prototype design pattern result of the bull market. A good economy can drive investments in the stock market, which in turn can boost the economy. 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. If you hit pause on your investments when prices drop, you won’t be able to swoop up shares at their discounted rate, which can shrink the impact that dollar-cost averaging has on your portfolio.