You won’t see any statues of bears on Wall Street in New York City. That’s because to investors, the bear represents market pessimism and stock price decline. The bull, on the other hand, represents market optimism and climbing stock prices—and is prominently displayed near Wall Street. What exactly does it mean to be bearish? And how could others having that outlook affect your investments? We’re breaking it down here.
What does bearish mean?
In the financial world, bearish means having a pessimistic view about a stock or other asset, sector, or even a whole market. According to some, the term originated from the way a real-life bear’s downward striking motion mimics the drop of a stock price.
Bearish is the opposite of bullish, which is marked by optimism and a belief in rising values. It’s possible to be bearish on one asset but bullish on another. The two terms stem from bear markets and bull markets.
Why are investors called bearish?
A bear, or someone who is bearish or has a bearish outlook, expects stock prices to fall. So, investors who believe stock prices will drop would be considered bearish.
What is a bearish market?
A bear market is generally a period when stock prices in a broad market index have fallen at least 20% from recent highs. This could refer to the closing price of the S&P 500®, an index that tracks the prices of about 500 of the largest publicly traded US companies, or the Dow Jones Industrial Average, which tracks the stock performance of 30 large, well-established companies.
Bear markets occur when a lot of investors sell their investments at the same time. Such a sell-off, with shares flooding the market, drives prices down. This tends to happen when investors are concerned their holdings’ value or future growth could be impacted by uncertain market conditions.
Just know that a market is only as bearish as its investors. Bearish investors become so when their analysis (or their fears and anxieties) leads them to believe prices will decline, but they’re not always correct.
Bearish vs. bullish
Here are some of the key differences between bearish and bullish outlooks.
Asset projections
- A bearish outlook means you expect asset prices to decline.
- A bullish outlook means you expect asset prices to rise.
Actual market conditions
- A bear market generally is considered to be when stock prices have fallen at least 20% from their high.
- A bull market is the opposite—typically these happen when stock prices are rising, with some sources specifying a 20% increase from recent lows. The term is thought to have originated from the way bulls’ horns move in an upward motion when they attack.
Investor reactions
- Bearish investors might use defensive strategies (like investing in less risky fixed income products, such as bonds) instead of buying more stocks, which they might see as too risky. Investors who are bearish on stocks might even sell them.
- Bullish investors might be more comfortable investing in stocks, even though they carry more risk. They might even look at downturns as buying opportunities because they believe it gives them a chance to buy stocks at lower prices (like something going on sale) before they eventually increase in value.
Tips for bearish investors
If you’re feeling bearish about the market, it may be tempting to pull away and hibernate. But that might not be the wisest strategy. Here are some suggestions for when you’re concerned about the markets or future health of the economy.
- Don’t panic sell. History has shown that cashing out during a rocky market hasn’t been kind to long-term investors. Markets tend to bounce back, and missing just a few of the best days could leave you with less money—though past performance can’t guarantee future results.
- Gut-check your risk tolerance based on long-term goals. A bear market could highlight the risks you’re taking with your investments, though a bear market may not be the best time to assess your risk tolerance. Instead, consider it in light of your long-term goals. (Generally, the farther away your goal, the more risk you could potentially accept because there’s time for the market to potentially recover from downturns.) If you realize your portfolio doesn’t match your risk tolerance, you could try selling and buying investments until you hit your target asset allocation, also known as rebalancing. Or consider diversifying your portfolio by spreading your risk across more kinds of investment types and specific investments. (Psst: Fidelity can do this for you.) Keep in mind, diversification and asset allocation don’t guarantee a profit or protection against loss.
- Stick to your overall investment strategy. It’s normal for markets to rise and fall. Committing to an all-weather plan could help your investments go the distance. For instance, dollar-cost-averaging is a recurring investment strategy in which you invest the same amount regardless of how the market is doing. If you contribute to a 401(k) plan, you might already be doing this, as a predetermined amount is regularly deducted from your paycheck and deposited into your retirement account. This way, you buy more when the share price is relatively lower and less when the price is relatively higher. If you hit pause on your investments when prices drop, you may not be picking up shares at a discounted rate. Like with rebalancing, dollar-cost averaging doesn’t ensure a profit or protect against loss in declining markets. For the strategy to be effective, you must continue to purchase shares in both market ups and downs.
- Shore up emergency cash. Whether or not you rely on your investments for income now, it’s a good idea to have emergency savings in an easily accessible account should you need it. Fidelity suggests saving $1,000 to start, then building up 3 to 6 months’ worth of essential expenses.
- Consider investing more. If you’re financially and emotionally prepared to ride out a bear market (median duration is 19 months), you could even consider investing more while prices are low or shifting some of your portfolio to more stocks, which generally have higher reward potential—and thus carry more risk—than bonds. While bear markets can present opportunities, keep in mind that doubling down on stocks is generally considered an aggressive strategy, and it’s impossible to predict when the market will bottom out. Shares you buy now may be worth less tomorrow, or they may not. Revisit your financial plan regularly (with your financial advisor if you have one) to see if you’re on a path that could help you reach your financial goals.