Bear market

Bear market

The approach of a bear market is a common concern for investors. While there are no specific indicators to predict this, there are some signs that you can watch for. 

Here, we provide an overview of a bear market and when investors need to be aware of.  

What is a bear market?

A bear market is a period in which the stock market declines. This can occur due to several factors, including an economic recession, inflation, or political instability. When the stock market is in a bear market, it can be challenging to make profits from investments, and many people incur losses. 

Many investors experience panic when they hear the term “bear market.” However, these severe market downturns are inevitable, and are frequently short-term, especially when contrasted with the length of bull markets, during which the market appreciates. Even in bear markets, there are profitable investing opportunities. 

How to recognise a bear market?

A bear market is considered as a decline of 20% or more from the peak of a market cycle. However, there are several ways to recognise a bear market in its early stages so that you can take steps to protect your investments.  

  • Market breadth 

One way to recognise a bear market is by looking at market breadth. This measures how many stocks are rising or falling in price. If the number of stocks falling in price starts to outpace the number of stocks rising in price, then it could be a sign that the market is about to enter a bearish phase.  

  • Market tone 

Another way to recognise a bear market is by looking at the overall tone of the market. If investors are becoming increasingly pessimistic and there is a lot of negative news about the market, it could be a sign that a bear market is on the horizon.  

If you are concerned that a bear market may be forming, it is crucial to take steps to protect your investments. One way to do this is by diversifying your portfolio so that you are not overly exposed to any particular sector or asset class. 

Causes of a bear market?

There are many causes of a bear market, but some of the most common include:  

  • Economic recessions 

When the overall economy is weak, it can lead to a bear market in stocks. This is because investors are worried about the future and are less likely to invest in stocks. 

  • Interest rate increases 

If interest rates go up, it can lead to a bear market. This is because when rates are high, it becomes more expensive to borrow money, leading to a slowdown in the economy. 

  • Geopolitical tensions 

If there are tensions between countries, it can lead to a bear market. This is because investors may be worried about the future and are less likely to invest in stocks. 

  • Natural disasters 

If there is a natural disaster, it can lead to a bear market. The disaster can damage infrastructure and lead to an economic slowdown. 

Types of bear market

Bear market

There are four types of bear markets: secular, primary, intermediate, and short-term.  

 A secular bear market is a long-term decline in the stock market that lasts for five years or more.  

  • A primary bear market is a shorter-term decline lasting one to three years.  
  • An intermediate bear market is a decline that lasts for three to nine months.  
  • A short-term bear market is a decline lasting for two to three months.  

The four types of bear markets are distinguished by their duration and extent of the decline in stock prices.  

While bear markets can be painful for investors, they are a natural part of the stock market cycle. And over time, the stock market has always recovered from bear markets and gone to new highs. 

How to invest in the bear market?

To invest in the bear market, firstly, you should identify the reasons for its occurrence. And then, you can begin to look for investment opportunities. One way to do this is to look for companies that are undervalued by the market. Another way to find investment opportunities is to look for companies doing well despite the bear market. 

Once you have found some investment opportunities, you must do your due diligence to ensure they are suitable investments. This includes researching the companies, their financials, and their prospects. 

Once you are confident in your investment choices, you can begin to invest. One way to invest in a bear market is to dollar-cost average into your investments. 

Another way to invest in a bear market is to invest in companies that pay high dividends. This will provide you with some income to offset any losses in the value of your investments. 

Whatever strategy you choose, the key to successful investing in a bear market is to have a long-term outlook.  

Frequently Asked Questions

There are numerous examples of bear markets throughout history. Some notable bear markets include the stock market crash of 1929, the 1987 stock market crash, and the more recent 2000-2002 and 2007-2009 stock market crashes. These crashes were all precipitated by economic recessions. 

Watching interest rates is one of the greatest methods to figure out when a bear market is approaching. A solid indicator that a bear market might be near is when the Federal Reserve reduces interest rates in reaction to a faltering economy. A bear market, however, can occasionally start before interest rates decrease. 

A few key differences exist between a bear market and a market correction.   

  • Firstly, a bear market is typically characterised by a sustained period of falling stock prices, while a market correction is typically a shorter-term event.  
  • Secondly, a bear market is typically much more severe, with stock prices falling by 20% or more, while a market correction generally is less severe, with stock prices falling by 10% or less.  
  • Finally, a bear market typically occurs during an economic downturn, while a market correction can occur during any phase of the economic cycle. 

The key difference is that a bear market happens when stocks decline steadily over time, whereas a bull market happens when stocks rise. Understanding the distinctions between bull and bear markets and how they affect your investment choices is essential. 

Short selling in a bear market can help investors make a profit. This strategy includes borrowing shares, selling them, and then purchasing them again at a discount. But if the trade does not succeed, it might result in significant losses. 

 

Related Terms

    Read the Latest Market Journal

    Weekly Updates 26/2/24 – 1/3/24

    Published on Feb 28, 2024 38 

    This weekly update is designed to help you stay informed and relate economic and company...

    All-in-One Guide to Investing in China via ETFs

    Published on Feb 27, 2024 180 

    Start trading on POEMS! Open a free account here! Why China? In the vast landscape...

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 211 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 60 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 65 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 89 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlock Prosperity with 5 Sure-Fire Financial Instruments!

    Published on Feb 14, 2024 197 

    In Singapore, the concept of guaranteed returns may evoke the spirit of prosperity, reminiscent perhaps...

    Weekly Updates 12/2/24 –16/2/24

    Published on Feb 13, 2024 70 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you

    IMPORTANT INFORMATION

    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  

     

    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com