How to Understand That the Bear Market Is Over
Following the stock market can feel like being hit with a whip: it falls and depresses, then rises and excites, then falls again. But if you’ve been paying even the slightest bit of attention over the past year or so, you probably know that the overall trend has been negative, and it’s generally not a good time to check your investment account balances.
The S&P 500, one of the major indexes for measuring the stock market, went into a bear market in June but then seems to have risen recently along with the rise of both the Dow Jones Industrial Average and the Nasdaq Composite. As of this writing, the index is up 10% from last month’s low .
Unfortunately, some analysts believe that we have not hit the bottom yet, and these small glimmers of hope are nothing more than a bad rally – a short-term upswing that attracts some buyers but quickly reverses course. So, when does a rally turn into a recovery, and how do you know when a bear market is over?
How to Know When a Bear Market is Coming to an End
The short and unsatisfactory answer is that there is no definitive way to predict the end of a bear market or the continuation of an uptrend.
“Trying to time the market is a fool’s errand, and it’s incredibly difficult to tell when a bear market will end,” says Matt Gray, a certified financial planner and founder of the AnthroFi Wealth Group in Colorado.
Gray explains that signs that people want to buy again, such as above-average deals and a positive market, point to an opportunity, but even then, buyer sentiment can fluctuate significantly.
Longer rallies often require political or systemic shifts, such as changes in interest rates or regulations. Contrast that with short-term upswings that are more likely to occur depending on news and fluctuations in consumer sentiment.
It’s also important to recognize that rallies are relative: a one-day or hourly move may be good news for a day trader, but not have a significant impact on long-term investments.
What is a bear market?
Strictly speaking, the term ” bear market ” refers to a 20 percent (or more) decline in the price of a security, such as a stock, from a recent high. The phrase is also used more broadly to indicate that the market has dropped enough to worry investors, Gray says.
Bear markets can last from weeks or months to years or decades. A shorter cycle characterizes a cyclical bear market, while a longer cycle characterizes a long-term bear market .
A bull market , in contrast, is an extended period of rising prices, again specifically defined as a 20% jump after two separate 20% declines. Bull markets can also last for months or years.
“Bear markets also usually end before the economy gets better, so there can be confusion as to why the market is going up when things look so bad,” Gray says. He also adds that bear markets are ultimately short-lived and offer buying opportunities.