Markets are often described as being either bullish vs. bearish. These are common terms used to refer to how a market is performing over a shorter or longer period of time. Investors can also be bullish or bearish on a specific stock, a sector, an asset class, or on the economy in general.
Read on to learn more about the definitions of bearish vs. bullish, where the terms bullish and bearish come from, and the bullish and bearish meaning for investors in stocks or other markets.
Key Points
• A bull market features rising stock prices and high investor confidence.
• Bear markets are generally marked by a 20% drop in stock prices and sustained low investor confidence.
• Investor behavior in bull markets includes increased buying and holding of stocks.
• In bear markets, investors tend to move to safer investments and may sell assets.
• Diversifying investments and dollar cost averaging may help manage risks in bear and bull markets.
What Does Bullish Mean?
Bullish refers to stock market sentiment that the direction of the overall market will go up. A market that is increasing in value over a long period of time is said to be in a bull market. A bullish trend means that there may be an upward trend in prices for an asset.
For investors, being bullish means they feel positive about a stock, index, or the overall stock market. For example, if an investor says they are bullish on Stock X, the investor expects the market value of Stock X to increase in the long-term. That bullishness may even compel the investor to buy more shares of the company.
A bullish market is generally one where prices go up by 20% from a previous low for a sustained period.
What Does Bearish Mean?
Bearish refers to a sentiment that the direction of securities or the overall market will move down in price. An investor characterized as a bear believes the stock market will decrease in value, even if current prices are going up. An investor investing in a bearish market may even sell shares of their portfolio if they believe the market will turn negative.
A bear market is one that has fallen 20% from recent highs and remains below that threshold for at least two months. Since investors are bearish during this period, there may be lower trading activity.
Where Do the Terms Bullish and Bearish Come From?
While there are several theories as to the origins of bullish vs. bearish. The consensus believes the difference between bullish and bearish reflects the way each animal responds when they attack. When a bull goes into attack mode, it races at its target with confidence. In a bull market, investors are confident that stock prices will rise and correspondingly, the value of the market will trend upward.
When bears attack, they swipe their paws in a downward motion and often in fear. That is why in a bear market, prices drop. When investors are bearish, they do not have confidence in stocks and usually end up selling off some of their investments.
How Bullish Markets Can Impact Investors
In a bull market, demand is greater than supply. There are many investors who want to buy stocks while only a few are willing to sell. Bullish traders tend to have long positions in stocks or other assets.
How Bearish Markets Can Impact Investors
In a bear market, supply is greater than demand — and investors may look to offload their shares when there is not a lot of demand for market participants to buy. As a result, share prices decrease. A bear market is challenging for investors because stock prices keep falling, and that means more losses in an investment portfolio.
Your first instinct may be to sell in a bear market, but to increase chances of securing a profit in the long-term, it may make more sense to remain invested. Bear markets do not last forever.
Still, some investors prefer to adjust their investments in a bear market, turning to defensive stocks like consumer staples, healthcare, or utilities. They also may consider going into safer investments like bonds that offer stable fixed-income.
Bear markets can also present a good buying opportunity for investors who use dollar-cost averaging. This involves investing a fixed amount of money consistently. This way, investors can purchase stocks at a more affordable price.
Tips on Withstanding Bullish vs Bearish Markets
One of the best investing strategies during a bull or bear market is diversification. Diversifying your investment portfolio with different securities in a variety of different industries — along with various asset classes that may fare better in bear vs. bull markets — can help protect a portfolio by potentially minimizing losses and maximizing gains over the long-term.
Diversification means buying shares of companies in different sectors and companies of different sizes, rather than just investing in a select few of stocks, and also investing in different types of assets, such as low-risk bonds as well as stocks.
Stock Market
Investors who are not sure how to pick individual stocks can purchase an exchange-traded fund (ETF) or index fund, which are pre-selected baskets of securities all in one investment vehicle. For example, investors who own a fund that follows the S&P 500 will see their investments perform in line with that index.
In an ETF, investors own hundreds of companies, which means they don’t need to painstakingly choose one or two companies, rather, they own the entire index. Investing in these types of securities may be a strategy that utilizes diversification principles to help protect value.
The Takeaway
A market doesn’t necessarily have to be either bearish or bullish. It can actually be neither. The stock market can be in a state that is relatively flat. This may mean there are normal market fluctuations leading to either small gains or small losses.
Even if markets experience a sharp decline or rise in the short-term, this still cannot be defined as bearish or bullish because bull and bear markets are maintained over a period of time.
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FAQ
Does being bearish mean that you want to sell your assets?
“Bearish” means general pessimism about the direction of the market. In some cases, people are not even aware of a bear market until it’s over because it’s difficult to predict the direction of the markets. Investors who are invested for the long run do not pay attention to the peaks and troughs of the market and may take a dollar-cost averaging approach by investing consistently over time in both bear and bull markets.
How can you tell if a market is bearish or bullish?
Predicting and timing the markets is a challenging task. However, if stock prices have fallen by more than 20% from their recent peaks, and remained there for more than two months, that’s typically considered a bear market. A sustained increase in prices is a bull market.
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