What are the 5 stages of bear market?
Bear-market psychology follows a progression that is similar to what psychologists call the five stages of grief — denial, anger, bargaining, depression and acceptance.
A bear market has four phases: recognition, panic, stabilisation, and anticipation. In the recognition phase, only some investors see the bear market phase. The stock prices start to fall in the panic stage.
Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%. The deepest by far happened during the financial crisis between 2007 and 2009.
A bear market is generally considered to have happened when a stock or broad index (like the S&P 500) falls at least 20% from its most recent high. The opposite is a bull market, when prices rise at least 20% from bear market lows.
One definition of a bear market says markets are in bear territory when stocks, on average, fall at least 20% off their high. But 20% is an arbitrary number—just as a 10% decline is an arbitrary benchmark for a correction. Another definition of a bear market is when investors are more risk-averse than risk-seeking.
- Candlestick charts.
- The volatility index VIX.
- Market conditions.
- Economic indicators.
In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull markets.
“The bear [market] is almost over, and a new exciting bull market awaits in the second half of 2023,” he said, pointing to potential in technology stocks in particular.
Bear markets, when assets plummet 20% from recent highs, are among the scariest market events you'll encounter. But long-term investors can stay the course.
The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9, 2007 to March 9, 2009, during the financial crisis of 2007–2009. The S&P 500 lost approximately 50% of its value, but the duration of this bear market was just below average.
Should you hold or sell during bear market?
Simply buy cheap stocks for a fixed amount each month and hold them. Avoid selling after the stocks have lost their value. An average bear market can last for a few months and it does not indicate a recession. The economy might be slowing, but there is no certainty that a recession is soon to happen.
Keep a long-term outlook
It could take months or even years for the market to fully recover, but it will rebound eventually. In the short term, there's a chance that your investments will take a hit. Over the long run, though, you're far more likely to see positive average returns.
Don't reduce your 401(k) contributions, or the allocation of new savings to stocks, just because the stock market is struggling at the moment. In fact, a bear market is often the right time to increase the percentage of income you contribute to your 401(k) if you can afford to do so.
The fifty percent principle predicts that when a stock or other security undergoes a price correction, the price will lose between 50% and 67% of its recent price gains before rebounding.
- Rebalance Your Portfolio. A diversified portfolio consists of multiple asset classes like stocks, bonds and cash. ...
- Use Tax-Loss Harvesting. ...
- Own Risk-Averse Assets. ...
- Buy the Dip and Stay the Course.
Average bear market recovery time is 18 months. Shortest bear market recovery time was 11 months (Fallout from the US 'Vietnam War' recession) Longest bear market recovery time was two years and seven months (Dotcom bust)
Emotional capitulation indicates a bear market bottom
The bear market bottom comes with emotional panic and the desire to sell everything. You may have heard of another term – market capitulation. That marks the time when the last bull has finally given up. Investors lose hope.
The average length of a bear market is 292 days, or about 9.7 months. That's significantly shorter than the average length of a bull market, which is 992 days or 2.7 years. dot-com crash in March 2000 is technically the longest (a drop of 19.9% in 1990 nearly derailed that bull, but just missed the bear threshold).
- Stock prices start to fall.
- Negative investor sentiment. ...
- Economy spending declines, leading to deflation.
- Corporate earnings decrease.
Bull markets often follow bear markets. These are defined as an increase of 20% or more in stock prices. There have been many bull markets since 1930. While bull markets often last for years, a significant portion of the gains typically accrue during the early months of a stock market rally.
What causes a bear market to end?
High/Unstable interest rates and/or inflation – leading to high volatility. A decline in initial public offerings (IPOs) – companies tend to avoid going public in a bear market to avoid depressed company valuations. A comparative rise in short-selling.
Bear markets are largely pessimistic ones, so profits can be realised from short-selling and selling investments early in the bear market. They can also come from buying at the bottom of a bear market or a buy and hold strategy, where traders and investors simply wait out the bear market and ride the price rally up.
"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.
One of Wall Street's most vocal bears expects the stock market to fully recover its losses and trade to record highs in 2024. "This is not the end of the world.
Global consumer price index (CPI) inflation is on track to slow toward 3.5% in early 2023 after approaching 10% in the second half of 2022.
Common mistakes to avoid when retiring into a bear market include taking on too much risk with investments, failing to diversify portfolios, making poor financial decisions due to emotions, not having an adequate emergency fund, and not taking advantage of tax-deferred retirement accounts.
While there is no one-size-fits-all number when it comes to how much cash investors should hold, financial advisors typically recommend having enough money to cover three to six months of expenses readily available.
The good news is that it is possible to make money during a bear market, and it's easier than you might think. The key is to invest in strong companies and hold those stocks for the long term --regardless of what the market is doing.
As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days. Image source: Getty Images.
For workers and households, the picture was less rosy. Unemployment was at 5% at the end of 2007, reached a high of 10% in October 2009, and did not recover to 5% until 2015, nearly eight years after the beginning of the recession. Real median household income did not recover to pre-recession levels until 2016.
How far do bear markets fall?
And yet the average length of a bear market since 1929 is just 9.6 months, according to Ned Davis Research. True, those months will be agonizing, but consider the bright side: bears don't live as long as bulls. Indeed, since 1929, the average lifespan of a bull market is 2.7 years.
In a bear market, for example, “buying the dip” can actually accelerate your losses, at least over the short run. Done properly, however, it can also potentially generate great wealth. Oftentimes, these opposing potential outcomes leave investors in a state of inaction.
A bear squeeze is a sudden change in market conditions that forces traders, attempting to profit from price declines, to buy back underlying assets at a higher price than they sold for when entering the trade. As the term implies, traders get squeezed out of their positions, usually at a loss.
Trading in a bear market is not an easy task but can be done. If you know how to trade in a bear market and you can hold your emotions in check, it can be a period with many opportunities. Here we take a look at the different aspects of trading a bear market.
- Invest in stocks. Every investor wants to buy low and sell high. A stock market downturn during a recession might be an opportune time for bargain hunters. ...
- Invest in real estate. Real estate offers another potentially lucrative opportunity during a recession.
Government bonds and defensive stocks historically perform better during a bear market. However, most people investing for the long term shouldn't be aggressively tweaking portfolios every time there is a sell-off. The best way to go is to build a well-diversified portfolio and stick by it.
If you're retired, don't take withdrawals from your stock funds in a bear market unless you have no other choice. You won't have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.
Seniors should consider investing their money for several reasons: Generate Income: Investing in income-generating assets, such as stocks, bonds, or real estate, can provide a steady income stream during retirement. This can be especially important for seniors who no longer receive a regular paycheck from work.
Withdrawing money early from a 401(k) can result in hefty IRS tax penalties, which won't do you any favors in the long run. It's especially important for younger workers to ride out the market lows and reap the rewards of the future recovery.
Most of our experts agree that one of the safest places to keep your money is in a savings account insured by the Federal Deposit Insurance Corporation (FDIC). “High-yield savings accounts are an excellent option for those looking to keep their retirement savings safe.
What is Stage 3 in the stock market?
Stage 3 is when a stock stops going up and tops out. This is when you want to sell it. Then, you get to Stage 4, when a stock rolls over and enters a downtrend. You want to avoid stocks during this phase.
In a bear market the dominant trend is downward, and the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.
Stage 2 Characteristics
The stock trades above its 200-day moving average. The 200-day moving average is also in an uptrend. The 150-day moving average is over and above the 200-day moving average. The stock price is in an obvious uptrend, characterized by higher highs and higher lows.
Bear markets have often preceded recessions during the last four decades, but the S&P 500 typically reached a bottom before the recession ended. Investors who try to time the market will likely miss part of the rebound, and that mistake can cut deeply into long-term returns.
Stage 4: Downtrends
The stage often begins on high volatility but ends on low volatility because apathy and disinterest have taken their toll, dropping the security's volume to cyclical lows. Short positions taken early in a downtrend carry higher risk and higher reward than late in the decline.
| Sr. | Stock Name | Symbol |
|---|---|---|
| 4 | Max Financial Services Limited | MFSL |
| 5 | Gujarat Gas Limited | GUJGASLTD |
| 6 | LTI Mindtree Ltd | LTIM |
| 7 | Tech Mahindra Limited | TECHM |
There are four phases of the stock cycle: accumulation; markup; distribution; and markdown. The stock cycle is based on perceived cash flows into and out of securities by large financial institutions.
“The bear [market] is almost over, and a new exciting bull market awaits in the second half of 2023,” he said, pointing to potential in technology stocks in particular.
Bull markets often follow bear markets. These are defined as an increase of 20% or more in stock prices. There have been many bull markets since 1930. While bull markets often last for years, a significant portion of the gains typically accrue during the early months of a stock market rally.
When the stock market experiences multiple bounces or short-term rallies, they are called an intermediate-term bear market rally. At first, a bear market rally looks like a good thing as it serves as a respite from an otherwise downward direction of the market.
What is the Stage 4 bear market?
Stage four is anticipation.
This is when stocks start their recovery. As with the bear market's beginning, almost nobody recognizes its end until after the fact. The news at the time tends to be almost unrelievedly grim, accompanied by articles about how stocks' golden days have passed.
Level 2 can show you how a stock's direction will change in the near future… Or at least it can give you a sense of market sentiment. If you see big orders stacking up in the bid column — and they're close to the current bid — that means the stock is bullish.
Level II typically shows up to the 5-10 best bid and offer prices. Level III quotes add greater market depth by providing up to 20 of the best bid and ask prices. Users, primarily brokers and market makers, can also input data directly.
| Name | Date |
|---|---|
| United States bear market of 2007–2009 | 11 Oct 2007 |
| Financial crisis of 2007–2008 | 16 Sep 2008 |
| 2009 Dubai debt standstill | 27 Nov 2009 |
| European sovereign debt crisis | 27 Apr 2010 |
