The S & P 500 set a new record today, officially ending the shortest bear market in history and ushering in a new bull market. The index closed today at 2,750 points, marking the end of an 11-day trading day that ended on December 8, 2008 with a 1.7% decline, the second longest bear market in US history.
However, the period of just a few days has led some to discuss whether the bull market is still in force or whether it is a real bear market. As the world experiences one of its worst bear markets since the Great Depression, it is worth studying past bull and bear markets to make an informed decision about investing in the stock market for the long-term health of the US economy.
While it is important to know the difference between the bear market and the bull market, it could be just as important, if not more important, than knowing that it should not determine your overall investment strategy. Instead of focusing on bull and bear markets, for example, based on the S & P 500, one might as well be interested in the long-term health of the US economy and its economy as a whole.
The opposite of a bull market is a bear market, characterized by falling prices and typically cloaked in pessimism. A bear market is triggered when the market falls 20% from its previous peak over a prolonged period. The secular bull markets are the S & P 500, Dow Jones Industrial Average and Standard & Poor’s 500. Atheist bull markets : A secular bear market is an increase of less than 10% in the last 12 months and a decline of more than 30%.
A bear market rally, by contrast, refers to a temporary rise from a new low, not a long-term trend.
To be considered a bull or bear market, about 20 percent of the market value has moved the market. So when the trend goes up, it is considered a “bull market,” and when it goes down, you are in a bear market. A bull market is a financial market where prices are expected to rise, and they do because everyone else is. In financial markets, prices are rising because of a long-term trend, not because of a temporary rise from a new low.
Like it or not, bull markets and bear markets are part of the stock market’s life cycle, and you have to have a low bear market to reach a bull’s peak. Some say that there is no time when the market rises 20% from its low, while others claim that the bull is a market that is back to its previous peak. The history of the past 12 bull markets shows that those who recover fastest from bear markets also hold out on average the longest. Bear markets survive by sticking to the basic survival rule that pulls Wall Street off its bookshelf when a bear launches its attack on your money.
If the market reaches another closing high, as the S & P 500 did on Tuesday, the bear market will end. Note that the bull market ended in March 2000, when it fell 20% from its peak. The S & P 500, which measures the performance of the US stock market over the past 12 years, has been trading at 417 points since it ended in February 2000 – the second longest bull and bear cycle in history.
It is not unusual for a bear market to experience days or months of upward momentum, but if it slips 20% or more, it is still a bear market. When you’re young, bear markets offer you the opportunity to take advantage of lower stock prices until a recovery occurs. If you invest for a longer period of time, you can wait until the bear market is over and the bull markets return. Instead, consider bear markets as opportunities, and if they rise by 20% or more, they are not necessarily “bear markets.”
If you invest for long-term goals such as retirement, the bear market you will endure is likely to be overshadowed by the bull market. Time will tell whether this bear market rally will be long-term or whether the new bull markets will have to have it. If your investments continue to reach all – and hopefully bull – peaks, if bear market returns continue to outstrip bear market losses, then you can invest for your goals over the longer term.
Consider what is causing bear markets and some other key concepts that every investor should know. Read on to find out if you’re in a bull or bear market and, if so, what to do. Here are some important facts about what a “bear market” means, and what steps you can take to ensure that your portfolio survives the bear – turns – into – bulls.
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