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From bull to bear: What's happening in the market?

You may have heard the terms “bull market” and “bear market,” but you may not know what they mean for your investments.

Tags: Investing, Investments
Published: April 08, 2020

Let’s start by understanding the terms. “Bull market” and “bear market” are often used to define the stock market, but they can apply to any asset that is traded, including real estate, commodities and currencies.

 

What is a bull market?

A bull market period occurs when stock prices rise by 20 percent after experiencing a decline of 20 percent or more. Bull markets come in anticipation of or during periods of economic strength and typically last months or even years. They also often coincide with low unemployment, high corporate profitability and solid gross domestic product (GDP).

During a bull market, investor sentiment is optimistic and confident.

 

What is a bear market?

A bear market period, on the other hand, happens after the market declines by 20 percent or more from a recent peak. This type of market can take hold when the economy starts to weaken, as experienced during the COVID-19 pandemic.

During a bear market, broader economic indicators, like the GDP, start to decline. Unemployment may rise as companies start to lay off employees. Investor confidence is low, as many people are unsure about the future.

 

A look back at bull and bear markets

Past performance is no guarantee of future results, but it can be helpful to look at the history of the market’s expansions and contractions to understand how these market phases have taken place.

  • The average bull market has lasted 9.5 years with an average cumulative total return of 304 percent.1
  • The average bear market has lasted 1.6 years with an average cumulative loss of 38.9 percent.1

The last bear market was in October 2007, during the Great Recession, and it lasted until about March 2009. During that time, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 suffered declines of more than 50 percent —the worst market crash since the Great Depression.

The United States went through the H1N1 virus global pandemic during the last bear market. The government approved a $787 billion stimulus package in 2009, which kicked off the most recent bull market. Running until 2020, it was one of the longest bull markets in Wall Street history.

 

Market volatility: What is appropriate for you?

Bull and bear markets are tough to predict, and it can be even tougher to estimate how long they’ll last. In reaction to falling stock prices, many investors move money out of the market. A mass exodus, however, can cause the market to decline further.

In times of volatility, some investors may choose to stay invested in fixed-income securities, such as bonds, while others may also purchase stock at newly lowered prices. Still others may choose to purchase stocks in sectors that aren’t affected deeply by market trends; one example is companies producing items that are necessities in varied economic conditions, such as household products.

The day-to-day market movements — especially when they’re drastic — can be unnerving. In times of uncertainty, it’s logical to revisit your risk tolerance. Investing in the market should be considered a long-term strategy, and it should fit with your lifestyle and financial goals. Confirming that your asset allocation aligns with your financial goals and feelings toward risk is a worthwhile discussion with your financial professional.

 

Bull market vs. bear market: The bottom line

Amid the stress of a bear market, it’s important to remember that, while there is no guarantee, the stock market has delivered a positive return over the long term. In a bear market period, depending upon your circumstances, the decision to “stay the course” can be the right one, but there are circumstances — such as an impending retirement — that may cause you to reassess your path.

 

How you feel about the market is the one factor you can control. Read 4 strategies for coping with market volatility.

 

1 U.S. Bank Asset Management Group analysis, Shiller. Data: S&P 500 Index returns from 1/01/1920-12/31/2019. These returns are based on monthly performance data. These returns were the result of certain market factors and events that may not be repeated in the future. Past performance is no guarantee of future results.