Bull Markets Versus Bear Markets: What Do They Mean?
What’s a bull market?
In the simplest terms, a bull market is a period of rising stock prices. Traditionally it’s defined as a 20% or more gain for the Standard & Poor’s 500 stock index from a prior low. It’s also more loosely defined as simply a consistent period of rising stock prices.
It’s then defined as ending when the index suffers a 20% or more decline.
Why is the S&P 500 the barometer? Because it holds 500 of the US’s largest publicly traded stocks, which is considered a good overview of the market as a whole.
What’s a bear market?
Now, if a bull market means that times are good, a bear market means that times aren’t so good. It’s defined as a period when the S&P 500 suffers a 20% drop from a previous high, and stays that way for two-months or more.
Usually a bear market erases the gains from a prior bull market, and the losses can be pretty severe. Consider this: the average loss during a bear market since the Great Depression has been nearly 40%.The last two bear markets, the 2008 recession, and the 2000-20002 downturn wiped out half of the market’s value.
There’s a silver lining here: bear markets have typically just lasted a little over a year, and looking back, the stock market has always recovered. Another key point to keep in mind: Both bull and bear markets are considered “inevitable” by economists. In other words, it’s impossible to think that we are going to avoid a bear market forever, something to keep in mind as you consider what to invest in. Feature Illustration: Laura Caseley For The Money Manual