Bull vs Bear Markets: What They Mean to Investors

May 25, 20225 min read
Bull vs Bear Markets: What They Mean to Investors
Share on facebookShare on TwitterShare on Linkedin

Key takeaways

• A bull market is one that rises amidst a strong economy, while a bear market is one in which the value of stocks is declining and indicates the economy may be shrinking.

• Markets can be hard to predict, so the best play is often to hold on to investments known to be fundamentally sound.

• A 20% asset allocation in alternative investments can help shield a portfolio from volatility as prices flux between bear and bull markets.

More than just the mascots for two of Chicago’s sports teams, bulls and bears also define the trajectory of the stock market. A bull market is one in which stock prices trend upward, while a bear market is one in which prices are falling. Predictably, investor confidence tends to wane in bear markets, while it soars in bull market conditions. Understanding these terms can present smart investors with some wise investment opportunities by utilizing investor sentiment.

Investor psychology

While the economy certainly plays a role in the stock market’s performance, investor behavior can exacerbate its effect. In short, investor psychology and stock market performance can be highly co-dependent. 

A bear market incites negative market sentiment, which in turn leads investors to shift capital away from equities into fixed-income assets to defend against the decline. This capital outflow depresses prices, which serves to intensify the bear market’s effect. Conversely, the atmosphere of exuberance and confidence accompanying a bull market increases buying activity and drives prices upward. 

Having an understanding of this can position investors to profit in both bull and bear markets.

What is a bull market?

More precisely, if a bull market is a period in which there has been a 20% increase in stock prices since the last market downturn of 20%. While the term is most often applied to the stock market, it can refer to any traded asset, including bonds, real estate, commodities or currencies. The most recent bull market in publicly traded stocks began in the wake of the 2008 financial crisis and ran for just over a decade, until uncertainties associated with the COVID-19 pandemic crashed the market in 2020. 

What causes a bull market?

Bull markets typically occur when the economy is either gathering strength, or already exhibiting it. Strong GDP (gross domestic product) numbers, high employment figures and expanding corporate profits inspire robust investor confidence. This leads to more buying activity during a time in which fewer investors are interested in selling. At that point, demand is strong and supply is weak, so prices rise in response to the competition for the available equities. 

What is a bear market?

Bear markets tend to result when economic activity slows. Two of the most prominent symptoms of a bear market include an uptick in the unemployment rate and a decline in GDP. This can trigger investor pessimism.

Such doubt typically leads investors to seek shelter in what are perceived to be less-volatile investments. In order to accomplish this, they will sell off their equity positions. With more investors looking to sell than buy, prices fall. When prices fall by 20% or more for an extended period, a bear market exists. 

It is important to note that there is a difference between a market correction and a bear market. A market correction is a decline of up to 19% from a recent high, immediately followed by a period of stability or growth. 

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

What causes a bear market?

Bull and bear markets tend to coincide with the four phases of the economic cycle: expansion, peak, contraction, and trough. In some cases, bear markets take hold before a contraction actually occurs when investors have reason to believe the economy is about to contract. 

When the economy slows, fewer people have disposable income, so consumer spending goes down. This has a negative impact on corporate profitability, which detracts from the optimism investors have for publicly traded equities. Key factors to observe include stock market performance, GDP changes, unemployment changes, the rate of inflation and the prevailing interest rates. 

Historically speaking, bear market triggers have included rampant investor speculation, irresponsible lending, undesirable oil price movements and over-leveraged investing. There have also been instances in which institutional investors have perceived the market as being overheated and sold off their positions. This activity can incite pessimism among retail investors, resulting in an even larger sell-off. 

Investing in bull and bear markets

In most instances, growth stocks fare well in a bull market, while value stocks do better in a bear market. An investor’s approach, in either bull or bear markets, should largely be reflective of their time horizon. 

Investors with a long time horizon are usually better served by standing pat in a bear market, rather than selling reflexively. This, of course, assumes they are also holding enough safe liquid assets to help them weather volatility and potential downturns. 

The main thing investors should do is remain calm. Given the historical performance of the market, a downturn can represent an excellent opportunity for investors to add to their long-term positions. Trying to time the market seldom works out, as rebounds tend to be both sharp and unpredictable. Engaging a dollar cost averaging approach, along with mechanical rebalancing to a favorable asset allocation target (if needed), can assuage fears and help investors realize benefits from a bear market. 

Investment diversification

Any discussion of what bull and bear markets mean to investors must cover the importance of diversification. Most investors are looking to hedge against the tumultuous nature and not spend their retirement watching CNBC hoping they’ll continue to have enough to get by, and a judicious allocation of alternative investments in opportunities traditionally uncorrelated with stock market performance can often serve as an effective hedge against market volatility. Real estate, private equity, venture capital, digital assets and collectibles are among asset classes designated “alternative investments.” 

Broadly speaking, such investments tend to be less correlated with public equity, and thus offer strong potential for returns regardless of whether it’s a bull or bear market. These assets were traditionally accessible to an exclusive base of wealthy individuals and institutional investors who buy in at very high minimums – often between $500,000 and $1 million.  

Yieldstreet was founded with the goal of dramatically improving access to alternative assets by making them available to a wider range of investors. While traditional portfolio asset allocation envisages a 60% public stock and 40% fixed-income allocation, a more balanced 60/20/20 or 50/30/20 split may make a portfolio less sensitive to public market short-term swings. 

Summary

What Investors need to know when it comes to bull vs. bear markets is the importance of staying focused on the long-term viability of the companies in which equity positions are held. A fundamentally strong company will remain so, even during a bear market. The investor who continues to pursue the strategy they devised based upon their overall goals and a thorough understanding of the fundamentals can generally come out of a bear market relatively unscathed.

Learn more about the ways Yieldstreet can help diversify and grow your portfolio.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure