Bull vs Bear Markets: What’s The Difference?

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. In the investing world, the terms “bull” and “bear” are frequently used to refer to market conditions. These terms describe how stock markets are doing in general—that is, whether they are appreciating or depreciating in value. Bullish and bearish markets exhibit distinct characteristics that highly influence trading behaviors and investment strategies undertaken by investors.

The Bottom Line on Investing Through Bear and Bull Markets

Using a robo-advisor is an easy and affordable way to be hands-off with ADSS forex broker your investing approach. There isn’t a hard-and-fast rule, but some analysts describe a bear market as a decline of 20% or more off recent highs in the market across a broad range of asset classes. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years.

It also tends to be marked by negative investor sentiment, where investors are typically fearful and pessimistic about the state of the market and overall economy. The most recent bear market occurred in 2022, following the very short bear market of 2020. 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. Bear markets tend to occur before an economic downturn and may signal a recession.

Duration of Bull and Bear Markets

In many cases, a bear market is an environment where market behavior drags down the vast majority of stocks, even ones with strong fundamentals. By the time investors recognize a bear or bull market is happening, it’s often too late to shift strategies. That’s why it’s better to focus on long-term investing rather than trying to trade your way out of a bear market or into a bull market. A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance. In the case of equity markets, a bull market denotes a rise in the prices of companies’ shares.

Price decline

Typically, a bull market involves a rising market, often marked by a 20%+ gain for major stock market indexes like the Dow Jones Industrial Average or the S&P 500 over their recent lows. 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.

1. 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.
2. Even if you do decide to invest with the hope of an upturn, you are likely to take a loss before any turnaround occurs.
3. That’s a time to consider taking some profits to return your portfolio to your original investment goals.
4. The longest bear market in history took place between 1937 and 1942 as the Great Depression continued throughout the 1930s and the threat of war loomed in Europe.
5. In a bear market, however, the chance of losses is greater because prices are continually losing value and the end is often not in sight.

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. One of the basic axioms of investing is “buy low and sell high.” If you liquidate your stock holdings in a bear market, you’re doing the opposite. A bull market is defined by The Securities and Exchange Commission as two or more months where a broad stock index rises in value by at least 20%.

In recent history, a recession has followed a bear market about 70% of the time. Both bear and bull markets will have a How to buy bots 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. According to Invesco, using data from 1968 to 2020, the average length of a bear market was 349 days, while the average length of a bull market was 1,764 days. The average loss in a bear market was 36.34% and the average gain during a bull market was 180.04%.

Historically, the stock market has garnered average yearly returns of roughly 10%. Therefore, equities still represent one of the best opportunities for investment in forex long-term growth. During a bull market, investors are generally enthusiastic about a strong economy and solid job growth. The longest bull market in history started in 2009 and extended through 2020. The start of this bull market was on the heels of a severe bear market tied to the financial crisis of 2007–08. A bear market occurs when a stock market index drops by at least 20% from its recent highs.