Bullish vs Bearish Difference, Characteristics, and How to Invest

A bear market is essentially the opposite of a bull market, meaning that it is a prolonged period of declining prices. A bear market generally occurs when prices have declined by at least 20 percent from a recent high. Bear markets have historically not lasted as long as bull markets in the stock market. The U.S. stock market entered a bear market in March 2020 when prices fell more than 30 percent in just a matter of weeks.

  1. As prices fall, fewer people invest and more people sell off, unwilling to risk losing money as no one knows how low the market will go.
  2. The longest bull market occurred just after the Great Recession, starting in 2009 and running through 2020.
  3. 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.
  4. A bearish investor, also known as a bear, is one who believes prices will go down.
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This results in a downward trend that investors believe will continue; this belief, in turn, perpetuates the downward spiral. During a bear market, the economy slows down and unemployment rises as companies begin laying off workers. Institutional investors, such as banks, companies and wealth management firms, typically know that bear markets are software development articles brief, worry less about the present and think more about the long term. That’s why most financial advisors would tell you to hold your investments through both the bear markets and the bull ones alike. The term bear market most likely came from both parable and practice. It generally relates to the trade of bear skins during the 18th century.

What is a bear market?

These are industries such as utilities, which are often owned by the government. They are necessities that people buy regardless of economic conditions. Being bearish entails anticipating a long-term decline in prices.

A bull market is when an investment’s price is rising—called an uptrend—typically over a sustained period, such as months or years. Bulls think prices are going higher, while bears think they’re headed lower. Try not to get caught up in trying to anticipate when a bull or bear market might begin or end. Think of your investments as part of your overall financial plan and do your best to take a long-term view. The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term.

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For example, if investors expect a major change in politics or in interest rates, this may increase the confidence of the market. For example, people used the term bullish for the cryptocurrency market when the prices of Bitcoin had risen substantially over the course of multiple months. When a stock market falls at least 10% but less than 20%, a stock market correction occurs. It’s common for individual investors to get spooked by bear market headlines and suffer from loss aversion bias, where losses loom larger than gains.

Definitions of Long, Short, Bullish, and Bearish

During this era fur traders would, on occasion, sell the skin of a bear which they had not caught yet. They did this as an early form of short selling, trading in a commodity they did not own in the hopes that the market price for that commodity would dip. When the time came to deliver on the bearskin the https://www.day-trading.info/how-does-investing-work-investing-in-stocks-for/ trader would, theoretically, go out and buy one for less than the original sale price and make a profit off the transaction. A bearish investor, also known as a bear, is one who believes prices will go down. Someone can be bearish about either the market as a whole, individual stocks or specific sectors.

Numerous strategies exist to accomplish this, such as selling short, purchasing put options, or purchasing inverse exchange-traded funds (ETFs). With the hope that the economy will expand and perform well, an individual’s purchasing power will increase. Consumer spending has increased, and the economy is doing well during the bull phase. These high rates put a cap on excessive investment in capital expenditures (CapEx). “Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity.

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Once you know your goals and their timeline, you can build your portfolio’s asset allocation.

Seeing the value of your portfolio go down can induce anxiety, and investors can panic-sell at the bottom, sometimes just before a recovery. Make sure your decisions during bear markets are based on your understanding of your investments rather than on your fear that they will never recover. Historically, the overall US stock market has eventually recovered. As prices fall, fewer people invest and more people sell off, unwilling to risk losing money as no one knows how low the market will go.

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