Bear Market Guide: Definition, Phases, Examples & How to Invest During One

Our watch lists and alert signals are great for your trading education and learning experience. The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members. This is not intended to be a forecast of future events or guarantee of future results. You can see how, as an investor, understanding these two scenarios is key to determining what to do with your money.

• Sometimes a correction can be seen as the start of a bear market which is not the case.
• On the contrary, in a bear market, the demand is significantly lower than supply as more people are looking to sell than buy.
• Because the financial markets are greatly influenced by investors’ attitudes, these terms also denote how investors feel about the market and the ensuing economic trends.
• They often occur when interest rates are relatively low, geopolitical tensions aren’t too intense, and inflation isn’t hurting peoples’ finances.
• Stock market performance and investor psychology are mutually dependent.

Bull and bear markets are tough to predict, and it can be even tougher to estimate how long they’ll last. In reaction to falling stock prices, many investors move money out of the market. The reality Bull and Bear Market: Definition & Difference is that most investors cannot predict when a bull or bear market will start or for how long it will last. Still, the SPX rose an average of 1% during recession periods since World War II.

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Nonetheless, perhaps the most common definition of a bull market is a situation in which stock prices rise by 20% or more from recent lows. Bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue for an extended period of time. It is difficult to predict consistently when the trends in the market might change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets. But this lousy performance might be considered “bearish” over a much shorter period, such as one quarter.

• Some investors watch for retracements within a bull market and buy the dip during these periods.
• Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.
• And as an investor, the direction of the market is a major force that has a huge impact on your portfolio.
• Back then, the S&P 500 had touched a high of 1,565.15 on October 9, 2007.
• This type of market can take hold when the economy starts to weaken, as experienced during the early years of the COVID-19 pandemic.
• But declining markets can seem like a ransacking bear on the loose – they destroy everything and make people lose confidence.

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. 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.

What It Means For Investors

Even if you do decide to invest with the hope of an upturn, you are likely to take a loss before any turnaround occurs. Thus, most of the profitability can be found in short selling or safer investments, such as fixed-income securities. A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs.

Both are often tied to the direction of the economy and can be symptomatic of changes in various economic factors. Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. 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.

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Even during a bull market, it’s unlikely that stock prices will only ascend. Rather, there are likely to be shorter periods of time in which small dips occur as well, https://www.bigshotrading.info/ even as the general trend continues upward. Since bull markets are difficult to predict, analysts can typically only recognize this phenomenon after it has happened.

Here’s what you need to know about bull and bear markets, including key differences between them. It’s not uncommon for analysts and observers to call a “bull market” when prices rise 20% or more from a previous low. However, there are many definitions of a bull market, with some saying one cannot be confirmed until the previous high has been taken out. But by the time that point is reached, it may not last too much longer.