Bull Versus Bear Markets: What You Should Know

If you pay attention to the stock markets, you have likely heard experts discussing the possibility of a bear market. The market typically experiences two types of markets: bear and bull. Bear markets are generally short-lived, lasting about 289 days on average. Bull markets, alternatively, last approximately 991 days or around three years. What does any of this mean for you, the investor?

Bear Versus Bull

Bull markets are favorable trading conditions. The markets are typically on the rise, and the overview of the economy is ultimately optimistic. Conversely, a bear market is essentially the exact opposite, stocks are declining, and the economy is amid an ebb or receding state.

Markets are influenced by investors and their overall confidence in the economy. Therefore, bull and bear can define investor attitudes.

Because bull markets typically denote sustained increases, investor confidence is high, as is the belief the upward trends will last. The general confidence in the economy bolstered by predictable increases and high employment levels results in heavy trading and investment.

A true bear market occurs when markets fall by 20% from recent highs. The downward trend hurts investor confidence, resulting in the selling of stocks and holding on to assets. The protection of funds and portfolios can perpetuate a further downward spiral. Bear markets inevitably result in unemployment and economic slowdowns as companies attempt to salvage market share.

Determining Market Changes

Determining the direction of a market is not about focusing on the short term. While events can result in significant downward or upward trends, the definition of a market depends on long-term responses.

Therefore, before you panic or react to changes in the market, consider the trends of the market. For example, a market might experience stagnation before settling in a specific direction. A stagnant market might experience several ups and downs before settling into a direction. The initial ups or downs cancel each other out and do not represent a market shift.

How To Respond To Bull or Bear Markets

A bull market is the best time to invest. You want to invest in a rising trend and sell before or when the stock hits its peak. The market is an ideal time to invest confidently and actively. Do not fear a few minor losses as the market typically course corrects, allowing for recovery.

Bear markets are riskier. The chances of experiencing losses are great because the market is on a downward shift. While you can invest with the hopes of returns, keep in mind that losses are almost always certain before seeing any gains.

It is best to invest in defensive stocks or fixed-income securities to protect your money. Defensive stocks include government-owned options, utilities, infrastructure, etc. Defensive stocks are rarely impacted by shifting trends or changing markets.

Both bull and bear markets influence investment strategy, and there are ways to profit or protect your assets in both conditions. Thankfully, bear markets tend to occupy only the short term, leaving more opportunities in bull markets to benefit.