How To Know If It Is A Bull or Bear Market? (2024)

One of the challenges when it comes to investing is that everyone has a different opinion where the stock market is headed – some say it is bullish, while others say it is bearish. Then when market analysts made a prediction that came true, they were hailed as gurus. Yet, when they make the wrong prediction following their initial success, they get forgotten. “Gurus” come and go, every market prediction is just a 50-50 bet, so wouldn’t you agree that financial news can be very confusing – whose opinion can you really trust?

Therefore, in today’s 154th week of our #SundayTimesRecap series, let us make sense of the financial news around us based on this article published in yesterday’s Sunday Times Invest section, “Is it a bull or bear market now?”, to learn for ourselves how bull and bear markets are defined, and then make wise investment decisions not by opinions but by facts and our intuitive observations:

1. The popular definition of a bull market is that stock market has gained 20% from its last bottom. Using the same logic, a bear market is one that has declined 20% from its last peak. The main problem with this definition is that it seems to be saying something about where the market is going and not about where it has been. It is not much of a bull market if you are losing money. Remember that to be classified as a bear market, stocks would have fallen 20% at least – which also means that a bull market would need a gain of at least 25% to wipe out bear market losses. Furthermore, the fact that the market has risen doesn’t mean it will keep rising – unless investors start to believe it will, and act on that belief to propel the market ever higher. A bull market based on emotional enthusiasm and not backed by rising earnings can easily become a bubble.

2. Bulls, bears and bubbles have been ambiguous metaphors for centuries. Great writers in the 18th century made up vivid but imprecise terms to describe them, such as the poet Alexander Pope, who used flowery language and mythological references to describe his hopes for South Sea Co stocks in 1720 - “Come fill the South Sea globes full. The gods shall of our stock take care: Europa pleased accepts he Bull, And Jove with joy puts off the Bear.” In other words, he was saying “let the good times roll!” but the bear soon triumphed. Even genius physicist and investor Isaac Newton also lost big during the South Sea stock collapse.

3. We can’t get rid of the terms bull and bear because they are too deeply rooted, too widely used, and too convenient. But in terms of categorising and periodising the stock market, there is a better way. It is one used by Mr Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, which maintains two famous US stock market indexes, the S&P 500 and the Dow Jones Industrial Average. He says that the S&P 500 may be in a bull market, but he won’t declare it as one until after the index matches its last peak, which was 4,796.56 on 3rd Jan 2022. Until that happens, this is still a bear market. This retrospective categorising of the stock market is similar to what the National Bureau of Economic Research does for the economy – it doesn’t make a recession declaration until well after one has started because it simply can’t be sure in real time about a system as complex as the US economy.

So, what do we do even if we know all the above? Firstly, we know it is always better to buy shares cheaply and sell them at higher prices. Therefore, when prices are 20% lower than before, like back in 2022, that will be an excellent time to buy stocks. At this moment, it is not as good as it was then, even though the market is rising now. Fortunately, long-term investors do not need to time the market, so just invest when you can. Instead of focusing on where the stock market may be headed, consider that over periods of 20 years or longer, the stock market has always risen. It is only during short periods that it has frequently fallen from time to time.

Are we in a bull or bear market now? It doesn’t really matter. We just need to stay calm - not get into a mass frenzy when market rises, nor get so fearful when it falls. Steady diversified investing has been successful for centuries, through all the bull and bear markets. This is why my teammates and I continue to advocate steady periodic investing and staying invested. At the end of the day, we just want to make sure that your investments will convert to a regular stream of monthly income that lasts you a lifetime. Join us at our next webinar - “The Lifetime Income Streams” happening on Wednesday 5th Jul 2023 at 8pm. Register for a seat – select “Invited by Victor” - here: https://www.thelifetimeincomestreams.com/tlisvip

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