When the stock market will return to "bull" stage? When will "bear market" finish? These and similar questions were recently asked by more than one investor. Therefore I would like to talk on where and when terms "bull" and "bear" are used in capital markets , what context they are suitable in, and whom they should not be confused with.
Claims that "bear market" has arrived, particularly intensified after the "black Wednesday" some have dubbed January 22, the day when some indexes declined to impressive 10 percent limit. Equity markets were stabilized only by the U.S. Federal Reserve Bank (FED) intervention when interest rates were reduced to pathetic 0.75 percent.
"Bull market" is derived from the concept of attacking, the bull horns directed up, perfectly illustrating the long-term market sentiment during rising of shares. Hoping for a good return on capital, a lot of investors are willing to increase their positions, while the remaining ones rush to jump to the "Bull Express.
However, the bulls have their own storm always ended and that often comes when it is least expected. The bears that have been drowsing peacefully suddenly wake up." Beginner investors often assume that it is best to sell their shares or fund units and get back on the market only when market starts going up." In my view, the deviation from the long-term investment strategy and attempts to guess short term market movements usually end up in losses.
Pros do know that it is almost impossible to determine when, if a crisis or a strong correction is taking place, the best time to buy or sell shares, and trying to guess that would probably cause us to lose money. The same applies to waiting through "bear market" - to say exactly when the market began to go down a long hill, experts can say only be a few years.
Of course, in the light of recently suffered extreme-day fluctuations it is sometimes difficult to overcome emotions and logically assess processes, especially when the experts and the financial media often change their opinion - "bulls returned," it "bears came back again."
Enlightened investors would be good to know that the "bull market" agreed to keep long-term, at least five years and often decades, continuing a period when stock indices, with the inevitable bigger or smaller short-term fluctuations are constantly rising, and investors are optimistic. Bear market - a mirror reflection of the bull market, is associated with pessimistic sentiment, economic stagflation and long-term economic crises. Both bull and bear market may be longer and leave a deeper impact than the preceding one.
Unfortunately, there is no reliable way to determine when the current trend will be replaced by another one (bulls to bears and vice versa), but considered that the main index fell more than 20 percent from the annual high (unfortunately, but this is today's reality) implies a bearish market is on its' way. It is also appropriate to note that only one-day decline in history, the biggest of 1987 October 19 th (often called "black Monday") made some of the indices to drop by 60 percent within a couple of days. This did not invite bear market, but the market rebounded to former levels in a couple of years. The same is true about current markets, all collapses have been short term so far. Let us be optimistic and invest accordingly.