Bull vs Bear: Understanding and Investing in Different Market Conditions (2024)

FAQs

Bull vs Bear: Understanding and Investing in Different Market Conditions? ›

Bulls are generally powered by economic strength, whereas bear markets often occur in periods of economic slowdown and higher unemployment. Instead of wanting to buy into the market, investors want to sell, often fleeing for the safety of cash or fixed-income securities. The result is a seller's market.

Bull markets tend to last longer than bear markets with an average duration of 6.6 years. The average duration of a bear market is 1.3 years. The average cumulative gain over the course of a bull market is 339%. The average cumulative loss over the course of a bear market is 38%.

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.

More people tend to invest in the market during bull periods to potentially profit. That increased demand for securities increases their price, which can then spur more even demand as even more people want in, sending stock prices—and gains—higher. Meanwhile, bear markets reflect pessimism and uncertainty.

A bull market is when stock prices are on the rise and economically sound, while a bear market is when prices are in decline. The origin of these expressions is unclear, but one reason could be that bulls attack by bringing their horns upward, while bears attack by swiping their paws downward.

Investing in bonds is also a common strategy to protect oneself during a bear market. Bond prices often move inversely to stock prices, and if stocks decline, a bond investor could stand to benefit. Short-term bonds in a bear market could help investors weather the (hopefully) short-term downturn.

Take a short-selling position. Going short in bearish times is one of the most common bear market strategies among traders. As a trader, you'll short-sell when you expect a market's price will fall. If you predict this correctly and the market you're trading on does decline in value, you'll make a profit.

The benchmark's new record high close confirms that the S&P 500 ended a bear market when it closed on Oct. 12, 2022, and that it has been in a bull market since then, according to one measure. The S&P 500 had lost nearly 25% in a sell off between its last record high on Jan. 3 2022 and its low in October 2022.

It can be easy to confuse your financial market animals — both bulls and bears are large, strong and known for territorial behavior. But in a bull market, stock market values rise at least 20% from a recent low, whereas in a bear market, average stock values drop by at least 20% from a recent peak.

The bottom line

When a bear strikes, you can see share prices falling hard and market values getting lower. Mentally, this may trigger your sense to "buy low," which is generally a smart thing to do.

When to buy stocks, bearish or bullish? ›

Growth stocks in bull markets tend to perform well, while value stocks are usually better buys in bear markets. Value stocks are generally less popular in bull markets based on the perception that, when the economy is growing, "undervalued" stocks must be cheap for a reason.

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, even as the general trend continues upward. Some investors watch for retracements within a bull market and buy the dip during these periods.

Directional price trends – an upward trend with higher highs and higher lows confirms a bull market, whereas a downward trend with lower highs and lower lows confirms a bear market. Historical price patterns – many technical analysts look to the past to help predict the future.

Is it better to invest in a bull market or a bear market? In general, bull markets are a better time to invest. Yes, stock prices are higher, but it's an overall less risky time to invest. You'll have a greater chance of selling assets for a higher value than when you bought them.

One way to capitalize on the rising prices of a bull market is to buy stocks early on and sell them before they reach their peak. In a bear market, where there is more loss potential, investing in equities should be done with great prudence, since you are likely to incur a loss — at least initially.

A bear can profit from being right about this by selling stocks or ETFs short in the market. This involves borrowing shares and then selling them, hoping to buy them back lower and return the shares to the lender.

“Investors who remain even keeled and disciplined in a negative market are likely to avoid common pitfalls and potentially enjoy better times ahead. Historically, the longer you stay invested, the greater your possibility of meeting your long-term goals.” Check in with a financial advisor.

Understanding Bear Markets. Stock prices generally reflect how investors expect companies to perform. If a company has lower-than-expected profits, or experiences less growth than analysts predicted, investors may respond by selling the company's stock, which makes the overall price decline.

A bear market often offers an opportune time to buy stocks at a discount, making it a lower entry point for those who have generally held off from investing.

Toberman said he's seen clients who actually retired during the bottom of bear markets make out well because they had conservative return assumptions of about 6%-7% in the stock market and have now been surprised on the upside.