Bear vs bull market: How to tell the difference
Understanding the contrast between bull vs. bear markets can help you feel more confident as an investor, especially when the stock market seems to be headed for a market downturn. 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.
- There are several ways to achieve this including short selling, buying inverse exchange-traded funds (ETFs), or buying put options.
- And as an investor, the direction of the market is a major force that has a huge impact on your portfolio.
- After being in a bear market since June 2022., the S&P 500 entered a bull market on June 8, 2023, after rising 20% from its October 2022 lows.
- It is generally said that as markets scale up over time, without falling for more than 20% from its previous 52-week peak, it is considered as a bull market.
Plus, the recent bank failures could foreshadow impending troubles for small businesses seeking out credit. Investors’ confidence starts climbing and the overall demand for stocks and similar assets go up. Businesses and companies usually get higher equity valuations, which usually means high levels of initial public offerings (IPOs).
Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail. You can see how, as an investor, understanding these two scenarios is key to determining what to do with your money. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.
But crafting and adhering to a clear long-term investment strategy could help you ride out whichever way the market’s going. 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.
How to invest in bull and bear market phases
When stocks are rising during a bull market, it usually indicates a time of economic expansion, that the economy is strong and investors are confident. Since 1932, the average length of a bull market has remained just under four years. In short, a bear market is when stock prices fall and a bull market is when prices go up. It’s easy to interpret the two terms as they are essentially opposites of one another. 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 a bull market, which is a continued rise in stock prices, you’ll likely see high investor confidence and a perception that there’s a strong economic environment.
Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Overall, if you notice, the value of ICICI Bank’s share has progressed gradually to remain in the range of 500+ levels over a year because of its strong fundamentals. So, this is the fruit which you got for taking the opportunity if you had bought in 2017.
Are We in a Bull or Bear Market As of 2023?
No one can predict when markets will rise or fall, but it’s good to be aware of the differences between bull markets vs bear markets. While bear markets can be scary, they are a natural part of the economic cycle and often lead to even stronger market returns. A diversified portfolio constructed for your financial goals can prepare you to confidently stay the course and weather any kind of market. The average length of a bear market is just 289 days, or just under 10 months. In addition, investors may benefit from taking a short position in a bear market and profiting from falling prices. There are several ways to achieve this including short selling, buying inverse exchange-traded funds (ETFs), or buying put options.
Typically, it is seen that the country’s economy is strong and employment levels are high during this phase of the market. Extrapolating to the current market situation, the Nifty 50; Nifty Midcap 150 and Nifty Small cap 250 have declined 14.5%, 17.7% and 18.0%, respectively, https://www.dowjonesanalysis.com/ from their October 2021 high to May 2022 lows. This indicates that Indian markets are not yet in the grip of a bear market. Market experts, on the other hand, believe that given the current geopolitical environment and macroeconomic factors, we may witness a further decline.
You can check out Insider’s picks for the best online brokerage and the best online brokerages for beginners for options on low fees, financial tools, and investment options. 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 https://www.topforexnews.org/ 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. In a bull market, the ideal thing for an investor to do is to take advantage of rising prices by buying stocks early in the trend (if possible) and then selling them when they have reached their peak.
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Ideally, an investor should have checked if there was value or not in the stock before buying. When you toss a coin, the occurrence of heads or tails is based purely on chance and is, therefore, unpredictable. If you continue flipping a coin 100 times, there may be instances of successive heads or tails. Now, relate this to the short-term movement in the stock market, like the downward movement to tails and upward movement to heads. Despite the 2022 lows in which inflation skyrocketed and interest rates dramatically increased, 2023 could be promising. The S&P 500 has jumped nearly 14% since October 2022 and is only 6% away from transitioning into a bull market.
In SIP mode, irrespective of the market condition, an investment of INR 10,000 was made monthly and a number of units were purchased. Effectively, during the bearish periods, more units were bought and during bullish periods, the value grew. Historically, it is seen that both phases occur one after https://www.forexbox.info/ the other, in alternation. Unlike stock market corrections (in which there’s only a 10% drop) bear markets generally last longer and have a more substantial impact on the economy. Understanding investor lingo is key to grasping the market’s current tone in order to make smart investing choices.
Here’s what you need to know about bull and bear markets, including key differences between them. During the expansion phase in the business cycle, businesses are steadily growing their profits as consumer demands for goods and services increase. In turn, businesses up production, hire more employees and increase prices. Regardless of the current state of the stock market, it’s important to stay focused on the long-term prospects of the companies in which you are invested. Companies with great business fundamentals are likely to produce significant returns for your portfolio over time. By employing a dollar-cost averaging strategy of investing a fixed dollar amount over regular periods, investors can lower their average buy-in cost.
The terms “bear” and “bull” are thought to derive from the way in which each animal behaves. In contrast, bears hibernate, so bears represent a market that’s retreating. Because the businesses whose stocks are trading on the exchanges are participants in the greater economy, the stock market and the economy are strongly linked. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Big market swings in either direction can feel overwhelming, especially when you see the effect they have on your money.
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