The current state of the stock market: is the US in a bear market?
The world economy has suffered strong consequences from the War in Ukraine. However, are we in a bear market? Find it out!
by Sabrina Paes
How you can tell if we’re in a bear market – and what to do about it
The world crisis brought many uncertainties to the financial market. This brought the question: Is the US in a bear market?
In the world of finance and investing, the bear is the animal that represents falling values. In contrast, the bull represents an increase in value. These animals are always present in the investment world.
Therefore, a bear market is one in which there is a prolonged fall in prices. Some factors such as slowdown, a weak economy, or shocks can stimulate the bear market.
In contrast, a bull market is considered when stocks are in bullish expectations. And that expectation is prolonged. It happens when the economy is doing well, without major problems.
During a bear market, you can take steps to protect your investment. In this sense, it can diversify investments, and analyze hidden opportunities, among others. Find out more about the bear market in today’s post.
What is a bear market?
The term bear market typically describes a fall below 20% or more in securities. This brings a pessimistic view on investments during the period.
In other words, a bear market is a name given to bear markets. This condition can happen due to a few factors:
- An economic slowdown;
- Wars that affect the world economy;
- A weakening of the economy;
- High levels of inflation.
However, there is a discussion among experts that the 20% rate is arbitrary. In this sense, many economies can be down without reaching this level. It all depends on the context in which the country is inserted.
A market crash may be scary for some, but it's actually a great time to invest for those who are prepared. Discover the opportunities available to you!
What are the signs that point to a bear market?
Knowing when the market is down is a big challenge, even for the best economists. According to Nobel Prize winner Richard Thaler, it is almost impossible to know the exact moment of the market.
According to his report, the bear market could extend for months after the 20% drop. In other cases, it may only last for a few days. Therefore, it is almost impossible to know whether the market is at a shallow low or has already reached extreme levels.
However, as much as we are not sure about the bear market, some factors can help in the identification. The first one is the market with a 20% drop in value. This figure brings pessimism to investors. Other directly related factors include:
- Reduction of economic growth;
- High unemployment rate;
- Weak corporate earnings numbers;
- Investor skepticism, negative expectations, and general pessimism in the market;
- Increase in short sales;
Based on these parameters, it is easier to identify whether the market is down or not. However, it is not possible to know exactly which level within this classification it is.
When will the bear market end?
According to CNBC data, the bear market does not occur often. The last big drop happened during the Covid-19 pandemic period in 2020.
Another great example of this drop was during the Great Depression. It happened in 2000, and it brought a great economic shock to the United States.
However, with the Ukrainian War against Russia and a weakened world economy, this scenario could be unfavorable. Many people have been wondering if the US is in a bear market.
Unfortunately, due to these factors, we really are in a bear market. The question now is to know when everything will return to normal.
Still, according to the great economist Richard Thaler, what we know is that the year following the fall tends to improve. However, this only happens if risk factors such as a slowdown and a weak economy have been addressed.
Historically, this is what has happened after major bear market events over the years. Conflicting issues are resolved, and the economy returns to growth the following year.
The S&P 500 index fell by 3.9% in the month of June 2022. As a result, it added to the rest of the previous months and reached a drop rate greater than 20%.
So what we can expect is that the economy will start to pick up steam when the war in Ukraine comes to an end. That is, it may be that the United States will begin to exit the bear market in 2023.
How can investors protect their money in a bear market?
During a bear market, investors become very pessimistic and tend to deny the situation. Then they start to accept the situation and then think of solutions.
It is essential to think of ways to protect your money during a bear market. Thus, you avoid potential losses and even manage to profit, depending on the type of investment. Check out!
1) Diversify your investments
The first tip is to diversify your investments. The world of variable income is not limited to the dollar and index contracts. You have several investment options, and the more diversified your portfolio, the lower your risk exposure.
2) Look for opportunities
Analyze parameters about the market to find opportunities. This is possible through indicators constructed through quarterly reports, in the case of companies, and also through market share, among other market indicators.
3) Use operational simulators
Low moments on the Stock Exchange are not the most suitable for you to put new operating techniques into practice and expose your capital even more to risk.
Therefore, look for operational simulators that can put into practice a possible return on investment. Thus, you can be more confident when allocating the money.
4) Invest in risk management consulting
Finally, you can hire a risk management consultancy. There is no way even to consider operating in the market without the concept of risk management. It will present the investments with the highest failure tendency and indicate the next steps.
You need to carry out your trades by setting a stop loss and a stop gain every time, thus preventing the trade from consuming all the capital you had for the trading session.
And if you want to learn more about investments and how to invest better, read our post below to know if you should invest in dividend-paying stocks!
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