Author Topic: How do you know whether itís a bull or a bear stock market?  (Read 10524 times)

rudged

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How do you know whether itís a bull or a bear stock market?
« on: March 30, 2021, 12:44:30 PM »
Iíve often heard people claim that they will cut their spending during a bear market to avoid selling stocks at a loss. But how do you know at the time whether it is a bull or a bear market?

Iím not asking for a crystal ball forecast of the future of the stock market, nor do I think it is even reasonable for one to expect a reliable way of determining this in the present given that economic experts looking at the same data could genuinely disagree about whether we are currently in a bull or a bear market. But what about the recent past?

I have in mind a traditional retiree who has to sell part of her portfolio (composed of stock and bond index funds) because of a legal requirement (required minimum distributions). She canít avoid selling, but it seems like she could develop a strategy for what to do in response if she could reliably determine whether the sale took place in a bull or a bear market at the time of the sale.

GuitarStv

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #1 on: March 30, 2021, 01:10:07 PM »
You usually know months or years afterwards.  It's not possible to determine when you're living the time.  Too many variables, too many irrational actors in the market.

rudged

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #2 on: March 30, 2021, 03:30:45 PM »
You usually know months or years afterwards.  It's not possible to determine when you're living the time.  Too many variables, too many irrational actors in the market.

Thanks. I guess the question becomes, who do you listen to? Is there an authority or entity such as the Fed that can be relied upon to provide a consensus view once one is available?

GuitarStv

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #3 on: March 30, 2021, 03:33:33 PM »
You usually know months or years afterwards.  It's not possible to determine when you're living the time.  Too many variables, too many irrational actors in the market.

Thanks. I guess the question becomes, who do you listen to? Is there an authority or entity such as the Fed that can be relied upon to provide a consensus view once one is available?

Typically you would look at the market history and future from a given point to determine this.  There's no hard definition of the terms.

rudged

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #4 on: March 30, 2021, 03:37:15 PM »
Alternatively if there is no consensus view available with regard to the recent past, what does a phrase such as "I avoid selling equities during a bull market" even mean? (I avoid selling equities whenever I have an intuition that we are in the midst of a a bull market?)

GuitarStv

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #5 on: March 30, 2021, 03:40:16 PM »
"I avoid selling equities during a bull market" is a very useful phrase.  It indicates that the person you're talking to is an idiot and that you shouldn't discuss investments with them.  :P

Freedomin5

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #6 on: March 30, 2021, 03:52:54 PM »
In terms of knowing what to sell, you would compare your current asset allocation with your target asset allocation, and then sell to rebalance your AA. For example, if itís been a bull market and your equities have risen in value faster than your bonds, then sell off enough equities to rebalance your AA. And vice versa if itís been a bear market.

rudged

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #7 on: March 30, 2021, 04:36:48 PM »
In terms of knowing what to sell, you would compare your current asset allocation with your target asset allocation, and then sell to rebalance your AA. For example, if itís been a bull market and your equities have risen in value faster than your bonds, then sell off enough equities to rebalance your AA. And vice versa if itís been a bear market.

Thanks! So putting it all together. We have no way of knowing what markets will be in the future and no reliable way of determining how the markets are doing in the present or even in the immediate past. The best we can do in the face of this uncertainty is to construct portfolios that respond appropriately. (If bonds were negatively correlated with stocks, this makes perfect sense.)
« Last Edit: March 30, 2021, 05:25:37 PM by rudged »

reeshau

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #8 on: March 30, 2021, 05:34:55 PM »
A market correction is generally viewed as a 10% drop in an index.  (Pick your index)  A bear market is a 20% drop.  Of course, those only get determined once it has happened--in the past.  An outright recession is 2 consecutive quarters of GDP reduction, and may take months or years for the National Bureau of Economic Research to determine.

https://www.investopedia.com/terms/c/correction.asp
https://www.investopedia.com/terms/b/bearmarket.asp

If this person is truly worried about short-term fluctuations within a year, they could address those the same way you do when contributing: they could dollar-cost average, and automatically take out the appropriate dollar fraction is each period--1/4 each quarter, or 8% each month.  But most people I know aren't focused on that: either they take it out at the beginning of the year so that they can spend it (even if they have a buffer) or wait until the end of the year to manage their tax situation.  (which would apply outside of RMD's)

soccerluvof4

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Re: How do you know whether itís a bull or a bear stock market?
« Reply #9 on: March 31, 2021, 02:30:40 AM »
A market correction is generally viewed as a 10% drop in an index.  (Pick your index)  A bear market is a 20% drop.  Of course, those only get determined once it has happened--in the past.  An outright recession is 2 consecutive quarters of GDP reduction, and may take months or years for the National Bureau of Economic Research to determine.

https://www.investopedia.com/terms/c/correction.asp
https://www.investopedia.com/terms/b/bearmarket.asp

If this person is truly worried about short-term fluctuations within a year, they could address those the same way you do when contributing: they could dollar-cost average, and automatically take out the appropriate dollar fraction is each period--1/4 each quarter, or 8% each month.  But most people I know aren't focused on that: either they take it out at the beginning of the year so that they can spend it (even if they have a buffer) or wait until the end of the year to manage their tax situation.  (which would apply outside of RMD's)

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