Bear vs Bull: Your Financial Strategies and Market Trends

By : Jeremy Sorci | April 26, 2019

Clients often come to us with questions about market trends — will the bear market dominate or will the bull market prevail? Given the volatile market conditions of the past few years, these concerns are easy to understand.

The question of bear vs bull markets is incredibly common. We’re happy to inform our clients that market history offers good news: Bull market cycles last longer than bear market cycles. But that’s not all — bull markets also produce cumulative gains that more than offset bear market losses. Here’s the lowdown.

Wealth Planning: Know Your Definitions and Methodology

First, what makes a bear a bear? Bear markets are identified in hindsight and are defined as such when the market meets two conditions: 

  • Daily negative return
  • Cumulative loss of at least 10% 

Bear markets end at their low point. Bull markets are a bit easier to quantify; they simply include everything not considered a bear market.

How S&P 500 Daily Returns Affect Strategic Wealth Planning

Ron Ross, CFP is a CFP Certified Financial Planner and Financial Advisor with Premier Financial Group in Eureka Humboldt County

Take a look at the bull (blue bars) and bear (red bars) market periods in the S&P 500 Index from January 1, 1926 through June 30, 2013. As you can see, the bull handily beat out the bear in daily returns, both in average duration — 413 days vs. 216 days — and in average returns — 58% vs. -12%.

S&P 500 Monthly Returns and Your Financial Plan

Ron Ross is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt County

From January 1926 to June 2013, S&P 500 monthly returns reflect the same trends as daily returns. Specifically, the average duration of bull markets was 30 months, beating the bear market’s average 11 month duration. Bull market average returns triumphed at 111%, as compared to bear markets’ -26%.

The Russell 2000 Index and Investment Planning

Ron Ross is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt County

Now let’s look at the Russell 2000 Index — which measures small-cap equities — from January 1979 through June 2013. The numbers reflect the relative strength of bull over bear markets, with bulls’ average duration of 18 months to bears’ 8 months, and bulls’ average return of 68% as compared to bears’ -23%. And the bull triumphs again.

Plan Your Wealth Management Strategies

Bear vs Bull

From this data, you and your wealth advisor can conclude that: 

1. Since 1926, bull markets have lasted longer and delivered greater price gains than bear market losses

2. Each trend experiences fluctuating performance, underlying the difficulty of accurately predicting market cycles

3. An investment guidance approach based on the long-term makes more sense than emotional reactions to short-term movements, as some personal financial advisors may advocate 

Overall, the picture is clear: Bull markets last longer and deliver disproportionately greater returns. While index performance can — and will — fluctuate, the rational investor takes a disciplined, long-term approach and avoids making ill-timed decisions in reaction to (inevitable) market volatility.

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