how to identify bull and bear markets: Bull vs Bear Market: What Investors Need to Know The Motley Fool

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how to identify bull and bear markets

In other words, many investors wish to buy securities but few are willing to sell them. As a result, share prices will rise as investors compete to obtain available equity. Although a bull market or a bear market condition is marked by the direction of stock prices, there are some accompanying characteristics that investors should be aware of.

While bear markets have become less frequent overall since World War II, they still happen about once every 5.4 years. During your lifetime, you can expect to live through approximately 14 bear markets. In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore. No matter the economic climate, moomoo offers investors access to robust tools, education resources and advanced online trading opportunities necessary to execute an investment strategy.

how to identify bull and bear markets

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 a bull market, there are several characteristics that can be observed.

How do bull markets and bear markets differ?

This could be because investors anticipate the start and end of recessions, causing the stock market to top out before the economy shrinks and to hit bottom before the recession ends. During a bear market, stock markets will decrease in value, with fear informing many investors who look to sell their stocks to reduce their potential losses. This can have a snowball effect, further decreasing asset values, continuing to create an environment where supply outweighs demand.

Thus, most of the profitability can be found in short selling or safer investments, such as fixed-income securities. In a bull market, the ideal thing for an investor to do is to take advantage of rising prices by buying stocks early in the trend (if possible) and then selling them when they have reached their peak. The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term. Whether or not there is going to be a bull market or a bear market can only be determined over a longer time period. A bull market is the condition of a financial market in which prices are rising or are expected to rise.

how to identify bull and bear markets

As with bull markets, identifying exactly when a bear market is likely to commence is difficult, with multiple factors leading to bear market conditions. However, if the growth prospects of multiple stocks continue to wane, decreasing investor confidence, this can lead to an ongoing decline in stock values. This decline often leads to herd behaviour, with investor panic creating further downwards losses and decreased asset prices. There’s no guaranteed way to identify a looming bull market, as these are defined by continued investor confidence and optimism over extended periods of time.

Bull Market VS. Bear Market

The value of investments may fluctuate and as a result, clients may lose the value of their
investment. Bull markets are also often linked to increases in gross domestic product, signifying healthy economic climates that can increase investor confidence. While bull markets can’t be entirely guaranteed, these significant trends can point to their ongoing nature. Moomoo offers investors the benefits of its Interpretation of Indicators feature, which enables investors to view a Sentiment Indicator within the moomoo app.

how to identify bull and bear markets

The Dow Jones Industrial Average and Nasdaq had been in bull markets since Nov. 30 and May 8, respectively. Some investors watch for retracements within a bull market and buy the dip during these periods. The economy is often considered to be in a recession when GDP falls for two straight quarters, although other metrics also play a role. Since 1945, the National Bureau of Economic Research (NBER) identified 13 recessions, and there have been 13 bear markets, says Stovall. Market researchers define a bear market as when prices fall 20% from a recent high.

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. The average length of a bear market is just 289 days, or just under 10 months. A “bull market” in a financial asset means there is a rising price uptrend with higher highs and higher lows. Conversely, a “bear market” in a financial asset means there is a falling price downtrend with lower highs and lower lows.

S&P 500 Bull & Bear Markets

Companies with great business fundamentals are likely to produce significant returns for your portfolio over time. The terms “bear” (for down markets) and “bull” (for up markets) are thought by some to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. Increased buy and hold is a variation of the straightforward buy and hold strategy, and it involves additional risk. The premise behind the increased buy and hold approach is that an investor will continue to add to their holdings in a particular security so long as it continues to increase in price.

  • Reduced company earnings can lead to rising unemployment, negatively impacting GDP results.
  • During a bear market, the economy slows down and unemployment rises as companies begin laying off workers.
  • Even though you know a market recovery will happen, you may realize that your willingness to take on risk is less than you thought.
  • In a bear market, supply outpaces demand, leading to a decrease in stock values.
  • In addition to causing huge losses and lots of stress, the damage from bear markets can last for decades.

It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.

How should you invest in a bull vs. bear market?

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. In a bull market, investors willingly participate in the hope of obtaining a profit. Identifying these cycles gives you a chance to sell stocks at a profit during a bullish market or buy stocks cheaper during the bearish part of the cycle. If you’ve just retired and the market sinks 30%, it’s an unfortunate time to suddenly need cash from your investments.

  • Customers should consider the appropriateness
    of the information having regard to their personal circumstances before making any investment decisions.
  • Since World War II, it has taken about two years on average for the stock market to recover, or reach its previous high.
  • Bull and bear market trends are of great importance to traders, with varying market conditions pointing to the potential for profit (or the potential for a loss) within differing strategies.
  • No matter the economic climate, moomoo offers investors access to robust tools, education resources and advanced online trading opportunities necessary to execute an investment strategy.

Markets experience extended cycles where prices are generally rising or falling. Savvy investors pay close attention to bull versus bear market cycles to avoid buying stocks when they’re overpriced or selling when they’re undervalued. Long-term investors can buy stocks more cheaply as prices fall and valuation metrics such as price-to-earnings ratios (P/E) contract. Bear markets often convince businesses to focus on running their operations efficiently and becoming better stewards of their capital to entice investors. As an investor, it’s important to keep your emotions from taking over during a bull market. If, for instance, you have a 60% to 40% investment strategy—with stocks at 60% of your portfolio and fixed income at 40%—a long rally might take stocks to 65% or 70%.

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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. A bear market is often caused by a slowing economy and rising unemployment rates.

Bull markets tend to be longer than bear markets, although the duration can vary from a few months to several years. The longest bull market occurred just after the Great Recession, starting in 2009 and running through 2020. After being in a bear market since June 2022., the S&P 500 entered a bull market on June 8, 2023, after rising 20% from its October 2022 lows. Both the Dow Jones Industrial Average and the Nasdaq are also in bull markets, having entered them on Nov. 30, 2022, and May 8, 2023, respectively. The S&P 500 entered a bull market on June 8, 2023, after rising 20% from its October 2022 lows.

From January 2008 when the price of SPY, as well as the 20-dma and 60-dma all fell below the 250-dma, until the bottom in March 2009, SPY fell about 49%. By August 2009, when the price of SPY, as well as the 20-dma and 60-dma all rose above the 250-dma, SPY had fallen about 23%. From November 2000 when the price of SPY, as well as the 20-dma and 60-dma all fell below the 250-dma, until the bottom nearly two years later in October 2002, SPY fell about 41%. By June 2003, when the price of SPY, as well as the 20-dma and 60-dma all rose above the 250-dma, SPY had fallen about 24%. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

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. Rising GDP denotes a bull market, while falling GDP correlates with bear markets.

Investors who want to benefit from a bull market should buy early in order to take advantage of rising prices and sell them when they’ve reached their peak. Although it is hard to determine when the bottom and peak will take place, most losses will be minimal and are usually temporary. Below, we’ll explore several prominent strategies investors utilize during bull markets. However, because it is difficult to assess the state of the market as it exists currently, these strategies involve at least some degree of risk. Still, the SPX rose an average of 1% during recession periods since World War II.

Join moomoo trading platform and become a part of a community of over 19 million active global traders. Because the businesses whose stocks are trading on the exchanges are participants in the greater economy, the stock market and the economy are strongly linked. The longest bull market in the history of the S&P 500 index lasted from March 2009 to February 2020 and saw the index gain over 300%.

Mary Davis
My name is Mary Davis. I am successful broker. I want to share my experience with you through tutorials and webinars. For any questions of interest, please contact us by e-mail: [email protected]. +1 973-709-5130


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