Another factor that determines whether the market is bull or bear is how the economy changes from time to time. In a bull market, corporate earnings increase, and the economy grows as consumers tend to spend more due to the wealth effect. Whether it’s a bull or bear market, diversification and buying and holding are the key to long-term growth. The S&P 500 has had more than 50 new highs difference between bull and bear market in 2021 alone, and the Dow Jones Industrial Average has had numerous itself. This signifies we’re in a bull market as the stock market today is one of the strongest ones of all time, explains Liz Young, a CFA and head of investment strategy at SoFi. Bull and bear markets are completely different beasts—and as an investor, it’s important to know the difference between the two.

One approach that can help you take advantage of the market’s ebbs and flows is known as dollar-cost averaging. By making consistent contributions and investments over time, you’re able to buy more shares when prices are lower, and fewer shares when prices are higher. These contributions could be part of a workplace retirement plan like a 401 or your own traditional or Roth IRA. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

Be Mindful That Bear Markets Are Inevitable

Likewise, changes in markets are indicated by substantial swings (at least 20%) in either direction. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. Margin trading We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

• When you’re going after stocks that are performing well, and constantly shift your strategy or buy and sell frequently, that could actually hurt your odds of losing in the stock market.
• Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory.
• When the price movements are on the upside the markets are said to be in a bull market with strong economic conditions.
• It’s all too common for investors to get scared out of bear markets at the absolute low and miss out on the typically huge gains that follow a bear market.
• Alternately, they may just have an opinion that the price will rise, but have decided against making any trades based on that opinion.

Acting on a bearish or bullish opinion should only be done based on a well-defined and tested trading strategy. Since she sold first, she’ll receive $1,000 into her trading account, but her account will show negative 100 shares. The negative share balance must be brought back to zero at some point by buying back the 100 shares.

What Is A Bullish Stock?

If you are in your 20s, 30s or even your 40s and are investing for a far-off goal, like retirement, strive to hold onto your stocks and keep investing during any market. If you’re investing in a diversified portfolio, you crafted your investment strategy and holdings with both bull and bear markets in mind. A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance.

The term “bull market” is believed to have originated from a bull’s fighting style, wherein it attacks its opponents with its horns in an upward motion. Today, a “bullish” market or investor usually connotes optimism concerning an asset’s continued rise in value. Short selling is a way of trading an asset that returns a profit if it drops in price.

Bullish Vs Bearish: Whats The Difference?

Represents understanding important financial concepts that enables someone to practice smart money management. Worries about inflation and the computerized trading contributed to the famous Black Monday crash. The S&P 500 ultimately lost a third of its value in just a few months before recovering. The S&P 500 fell nearly 30% in less than a year as the market cooled down — Investors simply thought the market had grown too fast over the previous decade. There’s a lot of debate here, and plenty of perspectives on how positive and negative market movements earned such visual mascots. The most commonly accepted reasons are simply nature and human history.

For an in-depth understanding of bull markets vs bear markets, and how these trends affect the activities of investors, read through our guide. When the bear market begins, the investors’ confidence collapses, and they believe prices will continue to fall, perpetuating a downward spiral. Underlying In the case of equity markets, a bull market denotes a rise in the prices of companies’ shares. In such times, investors often have faith that the uptrend will continue over the long term. In this scenario, the country’s economy is typically strong and employment levels are high.

What Bearish Means

The first thing you should have in order when it comes to investing is your ultimate financial goals. For most Americans, this principally includes retirement, along with vacations, buying a home and more. By defining your goals, you can make investment decisions based on them. By contrast, under this theory, a bear market refers to how a bear will swipe downward with its paw.

A bull market has no specific definition, but is a sustained period when prices are rising and generally expected to keep doing so. Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low. A bull market can last for years as it did with stocks starting from the lows of the financial crisis in 2009 until the global pandemic hit in March 2020. If you follow the stock market at all, you’ve probably heard plenty of references to bulls and bears.

Key Differences Between Bull Market Vs Bear Market

In other cases an investor might anticipate gains in a specific industry, stock, bond, commodity or collectible. If an investor is, say, bullish about ABC Corp., this means that he or she thinks that specific company’s shares will climb. Mind over matter — Investor enthusiasm can be a key driver to buying or selling stocks, which drives market movements. If investors have cash and think the economy is moving in the right or wrong direction, they’ll make moves that could strengthen that trend.

If you were short selling stock, for example, you would borrow some stock from your broker, and immediately sell it at the current market price. Once the stock has dropped in price, you would then buy it and return it to your broker, keeping the difference in price as profit. Bears believe that markets are set to drop in price, so the traditional investment mantra of ‘buy low sell high’ doesn’t apply.

What Is A Bear Market And How Should I Invest During One?

The two most well-known bear markets occurred during the Great Depression in the 1930s and the Great Recession from 2007 to 2009, although bear markets have occurred throughout history. Bull markets usually last longer than bear markets, which are marked by a price decline of at least 20% from a recent peak. The reference to the South Sea came from the South Sea Bubble, a scandal involving selling shares of the South Sea Company that people didn’t own. The stock was soaring at the time because Spain’s king had become the company’s governor, and shareholders received triple-digit returns on their investments for a time.

These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames. You can invest in specific sectors through index funds or exchange-traded funds, which track a market benchmark. For example, investing in a consumer staples ETF will give you exposure to companies in that industry, which tends to be more stable during recessions. An index fund or ETF offers more diversification than investing in a single stock because each fund holds shares in many companies.

Each week, Zack’s e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. Our editors will review what you’ve submitted and determine whether to revise the article. I have no business relationship with any company whose stock is mentioned in this article.

A bull market is a sustained rising stock market, sometimes defined as a 20% rally from a recent low. The term can also be used regarding bonds, currencies and other securities. And they both Bull Market vs Bear Market help in determining the stock price movements and investor confidence. Both Bull Market vs Bear Market is used by investors to switch through various modes of buying and selling. In a Bull market, the investors are essentially optimistic; in bear markets, the investors are typically pessimistic.

A retracement is a brief period in which the general trend in a security’s price is reversed. 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 move to buy during these periods. Bull markets generally take place when the economy is strengthening or when it is already strong.

Author: Eli Blumenthal