Bull vs Bear: Understanding and Investing in Different Market Conditions (2024)

FAQs

Bull vs Bear: Understanding and Investing in Different Market Conditions? ›

Bulls are generally powered by economic strength, whereas bear markets often occur in periods of economic slowdown and higher unemployment. Instead of wanting to buy into the market, investors want to sell, often fleeing for the safety of cash or fixed-income securities. The result is a seller's market.

Bull markets tend to last longer than bear markets with an average duration of 6.6 years. The average duration of a bear market is 1.3 years. The average cumulative gain over the course of a bull market is 339%. The average cumulative loss over the course of a bear market is 38%.

Both bear and bull markets will have a large influence on your investments, so it's a good idea to take some time to determine what the market is doing when making an investment decision. Remember that over the long term, the stock market has always posted a positive return.

More people tend to invest in the market during bull periods to potentially profit. That increased demand for securities increases their price, which can then spur more even demand as even more people want in, sending stock prices—and gains—higher. Meanwhile, bear markets reflect pessimism and uncertainty.

A bull market is when stock prices are on the rise and economically sound, while a bear market is when prices are in decline. The origin of these expressions is unclear, but one reason could be that bulls attack by bringing their horns upward, while bears attack by swiping their paws downward.

No matter how bullish a stock is, don't buy it too late in an advance, when it is far above the ideal entry point. Don't buy a stock that has poor volume characteristics on the breakout. If you bought it because you had a buy-stop order in, sell it quickly. Don't buy a stock showing poor relative strength.

What is the best strategy in a bear market? A potential strategy in a bear market (or any market) is to buy and hold stocks from major index funds like the S&P 500. Data from Crestmont Research shows that S&P 500 returns in any 20-year period from 1919 to 2022 were positive.

It can be easy to confuse your financial market animals — both bulls and bears are large, strong and known for territorial behavior. But in a bull market, stock market values rise at least 20% from a recent low, whereas in a bear market, average stock values drop by at least 20% from a recent peak.

One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy. Build positions over time: This goes hand in hand with the previous tip.

Some markets, such as bonds, defensive stocks and certain commodities like gold often perform well in bearish downturns. If you have the risk appetite for it, bear markets may also be an opportunity to short-sell if trading, making a profit if you predict correctly when prices will fall (and make a loss if you don't)

Can an investor only profit in a bull market? ›

Even during a bull market, it's unlikely that stock prices will only ascend. Rather, there are likely to be shorter periods of time in which small dips occur as well, even as the general trend continues upward. Some investors watch for retracements within a bull market and buy the dip during these periods.

Long-term investors can find many valuable stocks at lower prices during a bear market, making bear markets a good time to buy if you can afford to wait to see your investments rebound. Traders looking to make a short-term profit may need to use other strategies during a bear market, such as short selling.

With stock indexes at all-time highs, it seems we are in the midst of a new bull market. While much of the market's recent gains have come from a handful of stocks, the rally has begun to broaden in recent months. Expectations of an earnings rebound in 2024 suggest earnings could continue to drive the market higher.

A bull market is a sustained stretch of time when investment prices are rising in a financial market. A bear market is a sustained stretch when investment prices are falling. The market imagery of bulls and bears dates back to at least the 18th century.

Investors who believe prices will rise are known as “bulls” because of their upbeat attitude toward the market. They can profit by purchasing assets for less money and selling them for more. Bulls gain from price uptrends and positive sentiment in the crypto market.

Specifically, the S&P 500 has risen 40% since the current bull market began in October 2022. That leaves a potential upside of 18% (at the median) and 21% (at the average) through October 2024. We can also look at the data from another angle.

The words "bear market" strike fear into the hearts of many investors, but these deep market downturns are unavoidable. They also tend to be relatively short, especially compared with the duration of bull markets, when the market is rising in value. Bear markets can even provide good investment opportunities.

Is a bull market good or bad? A bull market is generally a good thing because it can indicate economic growth and optimism among business and consumers.

Benefits of investing during a bull market

Profit potential: Bull markets are characterized by rising asset prices, which can lead to significant gains for investors. This presents opportunities to grow wealth and achieve financial goals.

“Investors who remain even keeled and disciplined in a negative market are likely to avoid common pitfalls and potentially enjoy better times ahead. Historically, the longer you stay invested, the greater your possibility of meeting your long-term goals.” Check in with a financial advisor.