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How You Should Decipher Bull & Bear Markets

bull & bear market

Deciphering market names (bull vs bear market)

The market is a powerful conglomerate shaped by countless investors and participants, which can be challenging to decipher due to its many influences. 

Commentators often try to assign specific movements to various geopolitical and economic changes. Still, individual fluctuations are unassignable, with near-infinite forces affecting the market daily.

However, despite the unassignable micro-changes, we can still recognize macro trends such as where the market has been and where it appears headed. And the favored terminology of investors for prosperous and beleaguered periods are bull and bear markets.

What does a bull market mean?

Bull markets are enthusiastic periods of market exuberance where valuations have increased.

These prosperous conditions can last for short periods or longer spans, but the longest one on record was from the Great Recession up until the Covid Crash, which spanned eleven years (with some hiccups). 

However, in 2020 we saw a (brief) bear market that took stock and bond markets to unexpected lows due to the hysteria surrounding what the Covid virus would do to the economy and our world. Shortly after, the US government intervened, and the markets rebounded, finishing 2020 and 2021 in a bull market. 

Nevertheless, times change, and after 2022 began, uncertainty plagued the market again with soaring inflation, rising rates, supply chain issues, and (unfortunately) the war in Ukraine. Now, we find ourselves amid another bear market.

What does a bear market mean?

A bear market occurs when valuations across the entire market, not just an individual sector or two, decrease by 20% or more. 

While we have only seen the S&P 500 decrease by ~19% year-to-date, many agree that the domestic inflationary environment and lingering global supply chain issues warrant the designation. 

So, after extended exuberance, we are back to skepticism and uncertainty. And while bear markets have been less common in recent US history, they can last as briefly or prolonged as bull markets. 

Further, while the future is unknown, you still need to invest if you want financial independence.

How to remember bear vs bull market

Numerous investing beginners have asked me how to remember the names bear and bull markets based on their respective meanings. 

What I have found most straightforward is assigning their names to memory using the following analogies:

In the winter months, bears take downtime and hibernate. Similarly, valuations slump in bear markets, sending investor enthusiasm into a slumber.

Contrastingly, bull markets exhibit exuberant enthusiasm, similar to the excitement of a crowd during a matador matchup. 

But, use what works for you! My example is one of countless many I have heard.

Don’t invest based on market trends

As I mentioned briefly above, market trends should have zero relevance to whether you invest. 

While you should consider your risk tolerance and asset composition, simply not investing because you hear the term bear market is not excusable.

History is always 20/20 in hindsight, with pontificators declaring the end of eras as predictable. But, realizing the times changed is not easy when you live through the story until time has passed. 

Thus, rather than missing out on a change in market sentiments, you should tune out the figureheads chattering about what may happen next and instead carry on as usual.

Automate your investments, make sure you are increasing your savings towards retirement when you can, and focus on what matters most: being present in the here and now.

Markets come and go, but one thing is always constant: success is determined by time in the market, not by timing the market.

Have a great day!

Mile High Finance Guy

finance demystified, one mountain at a time

mile high finance guy

2 thoughts on “How You Should Decipher Bull & Bear Markets”

  1. I really am more of a threat to myself during a bull market, when I get swept up in the euphoria and think I can come out ahead of the latest bubble–knowing full well that it is, in fact, a bubble! In a bear, I stick to the script and keep piling money into my retirement accounts and go on with my life.

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