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What is a Bull or Bear Market? 

[By Staff Writers]

A bull market is generally one of rising stock prices, while a bear market is the opposite. Metaphorically, a wild bull tends to throw prey up; while a bear claws prey down. There are usually two bulls for every one bear market over the long term.

More specifically, a bear market is defined as a drop of twenty percent or more in a market index from its high, and can vary in duration and severity.   In the bear market of Y-2001, for example, the PE ratio of Standards & Poor’s fell from a high of 36, to a low of about 22. The PE for the Dow DJIA fell to about 19, from its high of 28. Recall, that PE is a measure of share price value relative to earnings per share. Historically, it has been about 15-16, according to most analysts.

However, as a physician investing for the long-term, do not worry since the average bear market has lasted only about a year. Sans the 2001 implosion, the bear markets of the prior past fifty years are listed below, using the Dow Jones Industrial average as a benchmark:

• Dec. 1961 to June, 1962: Days lasted: 195 Decline: 27% 

• Feb. to Oct. 1966: Days lasted: 240 Decline: 25% 
• Dec. 1968 to May, 1970: Days lasted: 539 Decline: 35% 
• Jan. 1973 to Dec. 1984: Days lasted: 694 Decline: 45% 
• Sept.1976 to Feb. 1978: Days lasted: 525 Decline: 27% 
• April 1981 to Aug. 1982: Days lasted: 472 Decline: 24 
• Aug. to Oct. 1987: Days lasted: 55 Decline: 36 
• July-Oct. 1990: Days lasted: 86 Decline: 21%

Assessment

What about now?

Today, it’s possible that the United States is already slipping into recession; downturns are recognized only in retrospect, and the Dow is down 10.3 % this last quarter of 2007.

Ironically, The Economist noted recently, 95% of American economists polled in March 2001 said a recession was not likely, but it was already under way. So, go figure!

Still, the Fed’s Beige Book report showed a slowing economy in October 2007. The anecdotal snapshot of the economy said retail sales were relatively soft, and retailers are bracing for a weak holiday shopping season; while demand for residential real estate remained depressed.

So, what do you think? Are we heading for a bull, or bear market?

Conclusion

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Filed under: Investing | Tagged: Investing Basics |