Bear vs Bull Market: Here’s The Difference And What To Know

During a bear market, which is a steep drop in stock prices, you’ll typically also see low investor confidence and a perception that the market is risky. In a bull market, which is a continued rise in stock prices, you’ll likely see high investor confidence and a perception that there’s a strong economic environment. 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.

A bear market is a downward trend in financial markets, indicating a weakening economy and a loss of investor confidence. Generally, a market is considered a bear market when prices have declined more than 20%. Bear markets can be as short as a few weeks or as long as a several years. Stock prices generally reflect how investors expect companies to perform.

The longest bull market occurred between 1988 and 2000, which saw the S&P 500 return 582%. This occurred alongside and because of the end of the Cold War and the rise of the internet. Inverse ETFs are designed to change values in the opposite direction of the index they track.

How Can I Protect My Portfolio in Case of a Bear 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. Since they represent significant price swings, bull and bear markets have a great impact on the performance of your investment portfolio. Government interventions in the economy can also trigger a bear market. For example, changes in the tax rate or the federal funds rate can lead to a bear market. Similarly, a drop in investor confidence may also signal the an introduction to lean kanban software development onset of a bear market. When investors believe something is about to happen, they will take action—in the case of an imminent bear market, selling off shares to avoid losses.

Trading the Bear Flag

There may be rallies within secular bear markets where stocks or indexes rally for a period, but the gains are not sustained, and prices revert to lower levels. A cyclical bear market, on the other hand, can last anywhere from a few weeks to several months. Investors who purchase stocks or other holdings during a bear market must be prepared for the prices of these holdings to drop further before bottoming out. Using a robo advisor like M1 Finance will enable you to keep your investing costs low. During a bull market, investors are generally enthusiastic about a strong economy and solid job growth.

The Nasdaq Composite most recently entered a bear market in March 2022 on fears surrounding war in Ukraine, economic sanctions against Russia, and high inflation. The U.S. major market indexes were close to bear market territory on December 24, 2018, falling just shy of a 20% drawdown. More recently, major indexes including the S&P 500 and Dow Jones Industrial Average (DJIA) fell sharply into bear market territory between March 11 and March 12, 2020. Prior to that, the last prolonged bear market in the United States occurred between 2007 and 2009 during the Financial Crisis and lasted for roughly 17 months. A bear market is when the stock market has lost over 20 percent in over at least a three month period.

What is a bull market?

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 Forex pairs 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. They are necessities that people buy regardless of economic conditions.

Investing Strategies in a Bear Market

• And with a life of more than a decade, it was twice as long as the average bull run of the post-WWII period.
• The bulls try to push the market up while the bears short or push it back down.
• During a bear phase, the prices fall, and everything declines, leading to a downward trend.
• Click here for our live trading room, where we discuss bull vs bear markets and how to trade them.
• Continuing to invest, even during a bear market, can help you bring your average cost of investment down.
• A bear market is when the stock market has lost over 20 percent in over at least a three month period.

Things may feel very bad when your portfolio drops month after month, and it takes resilience and discipline to see that as a buying opportunity. But if your research shows that a stock or sector is getting punished despite positive fundamentals, it could be time to add to your stake. By investing in a wide range of assets, particularly across different asset classes, you may be able to reduce risk and volatility.

Tips for Effective Trading with Flag Patterns

Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. Once they no longer have an active income stream, many people shift their investing strategies to preservation instead of growth. That generally means making your investments more conservative, or cash-, bond- and fixed-income-based, than you have before. Conventional wisdom suggests that buying low opencv introduction and selling high is the best way to profit from stocks. Sources within the finance industry indicate that bullish runs typically last five years (as noted previously), while downturns last about 1.3 years on average.

Bulls thrust up their horns while attacking the opponent, in the same way, when the market rises belligerently, it is said to be a bulls market. On the other hand, bears swipes down, their paws for attacking the opponent, likewise, when the market falls, it is known as bears market. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site.

While the stock market and the economy influence each other, they are not the same. The stock market reflects the performance and future expectations of publicly traded companies, while the economy measures a country’s output and consumption of goods and services. However, it’s hard to say whether the economy fuels the bull market or the bull market boosts the economy. However, bear markets don’t always coincide with recessions—about 25% of bear markets have occurred without an accompanying recession.

The 2022 bear market lasted approximately nine months, from January 2022 to mid-October 2022, when the S&P 500 hit its low point for the year. Looking at each of the major indices in the U.S., the Dow Jones Industrial Average entered a bull market in November 2022, followed by the Nasdaq Composite Index in May 2023 and the S&P 500 in June 2023. The stock market has not only recovered from every single bear market but has habitually outpaced its prior returns in the bull periods that follow. Bear markets can certainly spark anxiety among investors as no one likes to experience losses. Some of the best strategies investors can employ to protect their portfolios during times of uncertainty are with defensive plays, like those found in utilities, consumer staples and healthcare stocks. So, why is a bull market considered a positive sign and a bear market a bad omen for investors?