The stock market under bullish conditions is consistently gaining value, even with some brief market corrections. The stock market under bearish conditions is losing value or holding steady at depressed prices. 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. Bull markets tend to be longer than bear markets, although the duration can vary. Using the S&P 500 as a benchmark, since 1942, the average bull market lasted 4.2 years while the average bear market lasted 11.1 months.

In other words, bull markets historically have lasted a median of twice as long as bear markets—and have seen prices rise more than double what they have tended to fall in bear markets. 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. While you may be tempted to sell off your investments to avoid losing more money during a bear market, doing so locks in the losses you’ve experienced. You then have the difficult decision of figuring out when to reenter the stock market.

How to invest during a bear market vs. bull market

In recent history, a recession has followed a bear market about 70% of the time. Understanding that a bull market signals rising stock prices and a strong economy, while a bear market signals falling stock prices and possibly a weak economy is crucial to any type of investor. It’s easier to feel confident about your investments during a bull market, but remember that staying the course is usually the best thing you can ۱۰ reasons bitcoin is a terrible investment do with your money when a bear market occurs. Long-term investors generally should not change their investing style to accommodate either a bull or bear market. Rather, many experts recommend that they have an asset allocation that reflects their risk tolerance, their investing time horizon, and their long-term goals.

Bear market vs. bull market

A bear market is an extended period of time when the stock market falls at a continuous rate of at least 20% compared to its most recent high. As stock prices plummet, the economy takes a nose dive, unemployment rates often rise, and corporate profits decline. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented.

In contrast to the bull market, the SEC defines a bear market as a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period. At the most basic level, a bear market describes times when stock prices fall, and a bull market is when they’re going up. While this may make the two seem like mirror images, bull and bear markets are not simply here are our 10 best investing tips for building wealth in 2021 the same phenomenon in reverse.

More specifically, however, a bear market describes any stock index or individual stock that drops 20% or more from its recent highs. A bull market, on the other hand, typically rises 20% from recent bear market lows and reaches record benchmark highs. In the investing world, the terms “bull” and “bear” are frequently used to refer to market conditions.

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That being said, a robust economy—one with low unemployment, increasing wages, healthy levels of consumer spending and production, and moderate inflation—tends to coincide with a bull market. But it’s difficult to determine if the economic benefits are the reason for or the result of the bull market. A good economy can drive investments in the stock market, which in turn can boost the economy. Investing involves buying low and selling high, but it is impossible to predict market highs and lows. You may buy a depressed asset in a bear market only to watch the price fall even further. Depending on the company, the stock may never appreciate, and companies can go bankrupt during bear markets.

1. That’s because at any given time the market is usually described as one or the other—meaning they alternate as part of an ongoing cycle.
2. On the other hand, investors in a bull market may sell some of their stock for a decent profit or hold on in hopes of prices rising even more in the future.
3. If you notice these indexes are on a downward slope, the market will likely shift toward a correction or bear market.
4. These are industries such as utilities, which are often owned by the government.

As of January 2024, the S&P 500 was considered by investing experts to be in a bull market, with stocks in this index trading above highs previously set in 2022. The run up in this current bull market started in October 2022, when the most recent bear market ended. Some economic conditions remain strong such as low unemployment and inflation has slowed (although still above the Federal Reserve’s target of 2%). At the same time Interest rates remain high which fosters concerns of a potential recession. In all markets, experts recommend diversifying your holdings and considering your risk tolerance to select an investment strategy that you’ll be able to stick with through all the market’s ups and downs. According to the US Securities and Exchange Commission (SEC), a bull market is defined as a time when stock prices are rising and market sentiment is optimistic.

Change in Economic Activity

Both bulls and bears are intimidating animals, but in terms of the stock market, you’ll generally have luck running with the bulls and keeping your distance from the bears. It’s impossible to know exactly when a bull market will start, but one way for investors to prepare for the next one is to keep buying high-quality stocks, even when they are falling. So, why is a bull market considered a positive sign and a bear market a bad omen for investors? Maybe it’s because bulls are known to charge wildly to get where they want. Bears can charge, too, but they tend to destroy things, eating, rummaging and generally causing more damage than bulls.

As an investor, the direction of the market is a major force that has a huge impact on your portfolio. So, it’s important to understand how each of these market conditions may impact your investments. 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. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey. “Defensive stocks will lose ground in a bear market, but tend to lose less than average, supported by steady demand for their products and, often, generous dividends,” write Smith and Burrows.

The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. By employing a dollar-cost averaging strategy of investing a fixed dollar amount over regular periods, investors can lower their average buy-in cost. Market timing is notoriously difficult, and you never know when the market is going to hit its bottom. Using the term bull market is informal—there’s no formal metric to measure or determine when a bull market is happening. Still, a 20% increase in prices is often used as the ballpark figure that indicates a bull market.

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. Price inflation may be a problem when the economy is booming, although inflation during a bear market can still occur. High demand for products and services in bull markets can cause prices to rise, and shrinking demand in bear markets can trigger deflation.

So, in that sense, markets can charge higher, the best online brokers for 2020 wildly and with great power, just like a bull. But declining markets can seem like a ransacking bear on the loose in a town — they destroy everything and make people lose confidence. Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.