Bull versus Bear Markets: What’s the Difference? | American Funds

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Investing Fundamentals

DECEMBER 2017

Bull vs. Bear Markets: Knowing the Difference Can Make You a Better Investor

If you don’t know what bull and bear markets mean, it may be helpful to think about how we arrived at these terms and how they are used to describe market direction.

One popular belief suggests the terms were created based on both animals’ styles of attack. While a bull attacks by thrusting its horns up, a bear attacks by swiping its paws down. These can be likened to market direction, since markets move up, down and sideways.

In bull markets, prices trend up as financial markets show optimism. In bear markets, prices trend down as financial markets show pessimism. Stagnant markets are a result of continual ups and downs, where market gains cancel losses. On average, bull markets have lasted for eight years with annualized returns of 19% and bear markets have lasted for less than two years with annualized returns of -25%.*

infographic-bear-vs-bear-market-1200x627

Market cycles inevitably include both bull and bear markets. In fact, the exact length and scope of these markets is never clear until after the fact. In hindsight, trying to time these cycles consistently is impossible. As a mutual fund company, Capital Group has navigated various markets cycles for more than 85 years. Based on our experiences, below are a few tips to help you develop a plan of attack to boost your confidence in all types of markets:

  • Create an investment plan
  • Diversify your assets in mutual funds
  • Invest for the long term

 

 

*Source: Newfound Research, "Anatomy of a Bull Market," February 2017


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Certain market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. 

Past results are not predictive of results in future periods.