The financial markets goes up and sets record highs and sometimes it goes down and sets record lows. That is the nature of the financial market.
And sometimes, the financial market may need to recover (cool down) from performances that set records highs.
What this means is that sometimes, the bear market situation can be necessary to set things right in the stock market.
The bear market is not an entirely bad situation, and this post is set to expose you to things that are necessary for you to know as an investor, during this period.
What is a Bear Market?
Short Selling:
In a down market, short selling can help investors gain.
This strategy entails borrowing shares, selling them, and then buying them again at a discount.
If the trade does not succeed, it could result in significant losses because this strategy is highly risky.
The 20% drop signal:
A stock index enters bear territory when its closing price falls by at least 20% from its most recent high due to how market cycles are calculated.
On the flip side, the beginning of a new bull market in a stock index occurs when stock prices increase by 20%.
Bear Markets are Typical:
The S&P 500 Index has seen 26 bear markets from 1928 to 2022.
However, there have also been 27 bull markets, and over the long run, stock prices have increased tremendously.
This just means that Bear Markets do not last long.
Bear Markets do not always mean Economic Recession:
A bear market does not always portend a downturn in the economy.
Bear markets and weakening economies frequently go hand in hand, but a dropping market doesn’t always portend an impending recession.
The Bear Markets is not an entirely bad period:
Studies show that although Bear markets can be painful, overall, markets are generally positive.
According to Market history, only roughly 20.6% of the past 92 years of market history have been Bear markets. To put it another way, stocks have increased 78% of the time.
Bear Markets are Excellent Buying Opportunities:
In the past, bear markets have given investors fantastic chances to purchase high-quality stocks at a reduced price.
Even the majority of high-quality stocks are dragged down with the overall stock market when it declines.
This downturn in stock valuations offers lots of investors sporadic chances to buy shares of some of the best businesses in the market at a discount, compared to their longer-term earnings and cash flow outlooks, assuming that the broader market eventually rebounds.
Overall, the Bear Markets are a part of healthy Marker Cycles (a necessary evil), you may call it, and though can be quite frustrating, also has their function in the Stock Markets.
In any case, as an Investor, you must be proactive and research properly into this Market trend before you make an investment decision.
DISCLAIMER: This post is not financial advice. It was created for educational and informational purposes only.