Bull vs Bear Markets: What's The Difference?

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 do with your money when a bear market occurs. Investors in a bear market are tempted to sell off their investments during this time to eliminate the risk of losing even more money. 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. It may also cause investors to sell their investments for less than they paid for them, which can hinder their abilities to reach their financial goals long term.

They often occur when interest rates are relatively low, geopolitical tensions aren’t too intense, and inflation isn’t hurting peoples’ finances. A bull market doesn’t mean things go straight up or that there’s never a bad quarter, but stocks recover relatively quickly and show resilience despite bad news. For investors who are nearing or entering retirement at the start of a bear market, a severe downturn can put a real crimp in their financial plans for retirement. A potential downfall for investors in a bull market is a reluctance to sell and take profits. Especially in a prolonged bull market, investors can forget the pain they experienced in the last bear market and feel like the bull market will never end. This is perhaps the biggest risk that an investor might face in a bull market.

Key takeaways

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. Small movements only represent a short-term trend or a market correction. Whether or not there is how to write rfp for software going to be a bull market or a bear market can only be determined over a longer time period. Safeguarding your portfolio during a bear market typically means diversifying among different asset classes and business sectors. You might consider defensive stocks, bonds, or alternative assets that tend to have prices less correlated with changes in the broader market.

• Investing during a bull run means buying stocks when prices are nearing their highest levels.
• A bear market should not be confused with a correction, which is a short-term trend that has a duration of fewer than two months.
• Small movements only represent a short-term trend or a market correction.
• Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff.
• When indexes build an extended rally or suffer a lengthy sell-off, it’s called a “bull” or “bear” market, respectively, with bulls representing optimism and bears the opposite.
• We want higher yields and dividends in a bullish market to lure investors in with the promise of higher yields later.

Editorial Independence

For example, some utilities and consumer staples still have consistent returns during bear markets. But keep in mind that you don’t know when or for how long a bear market will occur, so you might miss out on further gains if you adjust your portfolio too much. In contrast to bear markets where selling pressure is high, market behavior during a bull run tends to involve lots of upward pressure on stocks due to intense buying demand. A sustained bull run can also avoid volatility in terms of prices bouncing up and down, as instead they just trend up. In many cases, a bear market is an environment where market behavior drags down the vast majority of stocks, even ones with strong fundamentals. The market is said to be a bulls market when a rise of 20% in the whole sole performance of the stock market is observed.

Bear markets tend to occur before an economic downturn and may signal a recession. Some notable bear markets include the Great Depression, the dot-com bubble, the Great Recession and as the pandemic started in February 2020, which is one of the shortest bear markets at 33 review manias, panics, and crashes days. 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. As for which investing strategies to employ, different sectors tend to outperform over various periods in a bull market. Early on, cyclical sectors like financial stocks and industrial stocks tend to outperform as they are most sensitive to interest rates and economic growth.

Bearish investors believe prices will drop, so they sell, buy, then sell, and take advantage of them. Which is better depends on your risk tolerance, portfolio strategy, and investment horizon. Generally, when buying in a bullish market, it’s essential to avoid buying at the peak. Conversely, bear markets offer chances to buy assets at lower prices, though you need a longer-term perspective and a view that the asset’s value will eventually recover. Taking a long-term approach can help you avoid the worst of a bear market. You might not enjoy seeing stock prices fall, but if you don’t sell, those losses are just on paper.

Conversely, a bear run implies a widespread and sustained downward trend. A bull drives its horns upwards, while a bear usually swipes its paws toward the ground. Figuratively, these actions denote the movements seen in most markets.

Where Did «Bulls» and «Bears» Come From?

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Most of the time, investors lose their confidence and exit in the bear market itself by booking losses. But there is a caveat involved; selecting a stock based only on its price during a bear phase, without checking the fundamentals of the company, can be misleading. Seeing the value of your portfolio go down can induce anxiety, and investors can panic-sell at the bottom, sometimes just before Forex sentiment analysis a recovery.

Over time, the name “bearskin jobber” was shortened to “bear.” The definition was expanded to include the financial markets, which were using “bear” already to describe a speculator selling stock. While the terms are relatively simple to understand, the impact that a bull or bear market can have on your portfolio is undeniable. Both animals are known for their incredible and unpredictable strength, so the images they evoke about stock market volatility ring true. Whether you’re bullish or bearish on animal metaphors, the bull and the bear are ingrained in the way we discuss the ups and downs of the market. There are no definitive answers about the origins of these market terms, but this article explores how bulls and bears came to battle it out in the language of finance. The first phase is characterized by high prices and high investor sentiment.

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. Stock prices are rising in a bull market and declining in a bear market.