Where Did the Bull and Bear Market Get Their Names?
Let’s take a look at bull vs bear markets, examples of each, and the impact they have on your financial strategy, to set the record straight. A bearish trend speaks of a receding economy with a stagnant or decreasing GDP. A recent example of a bearish market is March 2020, when major indices dropped as much as 30% due to COVID-19 and the ensuing market shocks. Most experts agree that a bear market is one in which securities prices have fallen 20% from recent highs, if not more, spawning widespread pessimism from investors. More specifically, however, a bear market describes any stock index or individual stock that drops 20% or more from its recent highs.
That desire for a bearskin price drop led traders to earn the nickname “bears.” Every “ying” needs a “yang,” so bulls became the positive bears’ counterpart. The fact that the market has risen doesn’t mean it will keep rising bulls vs bears definition — unless investors start to believe it will and act on that bullish belief, and propel the market ever higher. A bull market based on emotional enthusiasm and not backed by rising earnings can easily become a bubble.
How to invest in a bull vs. bear market
In other words, bear markets can lead to opportunities for long-term investors to put money to work. This is not unlike those folks who buy up real estate during slumps in the housing market. The caveat is, no one in the market can predict how long a bear market will last, especially if it’s driven by global economic factors or other external circumstances. As a result, crypto users taking this course of action could buy a certain asset prematurely, while prices are still on a downtrend. However, if macroeconomic factors take an unexpected turn, resulting in a bear market, crypto users tend to reduce their positions or lock in profits by selling assets.
Though macroeconomic factors do play a role in market regimes, they are not the main issue that drives them. In fact, it’s generally used only as ex-post justification for what already dominates investor psychology. During the bearish phase, companies begin laying off workers, leading to a rise in unemployment and consequently, an economic downturn. One of the most popular stories about the bears and bulls comes from the way the two animals attack their prey. When a bull is attacking something, it will thrust its horns up into the air, whereas a bear will often attack when in fear and will swipe down. Not only that, but the average total return from a bull market period is 472%.
If You’re Nearing Your Goal
For investors who hold the broad market through low-cost index funds, as I do, the simple 20 percent definition means that you have lost money since the market peak. To believe that this is a true bull market, you need to assume that it will keep rising. That’s magical thinking, and with the Fed signaling it intends to raise interest rates further, it’s dangerous. The main problem with that definition is that it seems to be saying something about where the market is going and not about where it has been.
- GDP growth is supposed to be a good thing, but it might drive consumer spending up, thus creating inflation, which is bad for markets.
- During a bull market, people may generally feel positive about the future as their investments perform well in the market.
- A bear market exists in an economy that is receding and where most stocks are declining in value.
- Raymond James’ data for the S&P 500 shows the longest bear market since 1926 lasted 2.8 years and took place in the early 1930s.
- 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 addition, investors may benefit from taking a short position in a bear market and profiting from falling prices.
Moreover, rising asset prices indicate market confidence and an incoming bull run. Contrarily, declining asset prices indicate low confidence and an incoming bear market. In general, things such as wars, political crises, pandemics and slow economies may trigger the start of a bear market.
What can you do as we enter a bull or bear market?
Are you wondering why these phases are named “bull phase” and “bear phase”? One of the most common reasons for this naming convention is the way these two animals ferociously attack. A bull charges ahead, thrusting its horns up in the air and a bear will use its claw to grab and drag its victim down. This movement is metaphorically the characteristic of the market condition.
First, if a bull market means to you that stocks are trending unequivocally upward, then, no, the bull market label is being misapplied right now. It’s not at all clear what the trend of the market will be for the next month or year. Because of this, many investors may choose to grow their money slowly using low-risk investments.
A bear market is also a good indicator of a recession — a long-term period of negative growth. 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.
- One helpful trick is to keep observing past market patterns of bull and bear trends.
- As investors sense a bear market coming on, this might be a good time to buy stocks, mutual funds and ETFs at a low price.
- The term ‘bull’ originally meant a speculative purchase in the expectation that stock prices would rise; the term was later applied to the person making such purchases.
- The downward spiral causes more people to hold off on investments due to the belief that more bad news will come soon and that there’s a need to brace themselves for the worst.
- The desirable economic projections that typify a bull market contribute to great price performances.
Since 1932, the average length of a bull market has remained just under four years. So, the question a lot of people ask is, how do you determine if it’s a crypto bull or bear market? Although both are marked largely by the direction of cryptocurrency prices, there are key differences that investors can take note of.