What Is a Bull Market, and How Can Investors Benefit From One?

Bull and Bear Market: Definition & Difference

While this may make the two seem like mirror images, bull and bear markets are not simply the same phenomenon in reverse. A bear market is when stock prices on major market indexes, like the S&P 500 or Dow Jones industrial average (DJIA), fall by at least 20% from a recent high. This is in contrast to a market correction, which is a fall of at least 10% and tends to be much shorter lived. But when they do, the bear market results in an average decline of 32.5% from the market’s most recent high. A put option gives the owner the freedom, but not the responsibility, to sell a stock at a specific price on, or before, a certain date.

However, not all long movements in the market can be characterized as bull or bear. Sometimes a market may go through a period of stagnation as it tries to find direction. In this case, a series of upward and downward movements would actually cancel-out gains Bull and Bear Market: Definition & Difference and losses resulting in a flat market trend. The longest bull market lasted from 2009 to 2020 and resulted in stock growth of more than 400%. A bull market is often defined as a period during which a major market index has risen by 20% from a recent low.

Reducing risk in an RESP: How to invest as your kid approaches college or university

Several aspects, such as supply and demand, change in economic activities, and investors’ psychology affect the market – whether it goes bull or bear. During the secular bull market, the S&P 500 rallied 391% and the Dow Jones Industrial Average (DJIA) – a term that denotes a bull market lasting many years – averaged 16.8% annual returns. From 2000 to 2009, the market struggled and delivered average annual returns of -6.2%. Whether a market is bullish or bearish depends not just on the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term.

During that time the Dow Jones Industrial Average (DJIA) declined 54%. The global COVID-19 pandemic caused the most recent 2020 bear market for the S&P 500 and DJIA. The Nasdaq Composite most recently entered a bear market in March 2022 on fears surrounding war in Ukraine, economic sanctions against Russia, and high inflation. This relationship to speculation seems to have at least partial origins from the gruesome blood sports of bull and bear-baiting. These contests began in medieval times around the 1200s and reached their height of popularity during the Elizabethan era.

What Should You Do in a Bull or a Bear Market?

In other words, small movements represent only a short-term trend or a market correction, and it’s a longer time period that would actually determine the nature of the market. A bear market is generally caused by a loss of investor, business, and consumer confidence. While financially painful, the bear market in 2020 was short-lived and relatively small compared to other bear markets. Barajas says value stocks can be another good place to look during early-stage bull markets. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started.

Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. Our live streams are a great way to learn in a real-world environment, without the pressure and noise of trying to do it all yourself or listening to “Talking Heads” on social media or tv.

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Savvy investors pay close attention to bull versus bear market cycles to avoid buying stocks when they’re overpriced or selling when they’re undervalued. As unnerving as bear markets can be, they do have positive aspects. Long-term investors can buy stocks more cheaply as prices fall and valuation metrics such as price-to-earnings ratios (P/E) contract. Bear markets often convince businesses to focus on running their operations efficiently and becoming better stewards of their capital to entice investors. A bull market is when a major stock market index rises at least 20% from a recent low.

For example, the bear market that began in 2000 and extended into 2002 was largely fueled by the “bursting of the tech bubble.” It was then exacerbated by the tragic events of 9/11 and the aftermath. During this bear market, there were sectors that still did well for investors. By employing a dollar-cost averaging strategy of investing a fixed dollar amount over regular periods, investors can lower their average buy-in cost. Stovall says since 1945, the combination of these four factors is what typically led to bear markets. 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.

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“If there’s a 10% correction in the middle of the year, but the market finishes higher than the previous year, one can argue that we’re still in a bull cycle,” Paré says. The Bullish Bears team focuses on keeping things as simple as possible https://www.bigshotrading.info/ in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics. Also, we provide you with free options courses that teach you how to implement our trades as well.

  • A bull market is a market that is on the rise and where the conditions of the economy are generally favorable.
  • Investors will encounter both types of markets over time and their portfolio should be constructed in order to allow them to weather both types of market environments.
  • A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs.
  • Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.
  • It’s important to note, though, that even during bear markets, the stock market can see big gains.
  • In this case, a series of upward and downward movements would actually cancel-out gains and losses resulting in a flat market trend.

Bull markets generally coincide with periods of robust economic growth; investor confidence is on the rise, employment levels are generally high, and economic production is strong. You can prepare for a bear market by reducing risk in your portfolio. For example, you can increase the amount of cash and reduce the number of growth stocks in your portfolio. You can also select bonds or mutual funds that perform better during a bear market, such as gold funds and sector funds that focus on health care and consumer staples.

Puts and Inverse ETFs in Bear Markets

The longest bull market in the history of the S&P 500 index lasted from March 2009 to February 2020 and saw the index gain over 300%. This bull market was characterized by strong earnings growth, low interest rates, and investor optimism. Despite its length, the bull market was relatively volatile, with several corrections and pullbacks along the way. The technology sector significantly outperformed the broader market during this bull market.

Bull and Bear Market: Definition & Difference