No matter what the economy is, you will often hear the terms 'bear' and 'bull' market being thrown around. You might watch CNBC and hear a financial professional talking about the latest bear market and wonder what exactly that means. What is the difference between a bear and a bull market?
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A bear market is a decline in a market. A bear market is most often referred to with the stock market. If the markets have been declining over a long term time period, which can be months or longer, the markets are acting bearish. This is usually determined by looking at how an index is doing such as the DJIA or the S&P 500. For example, if the S&P 500 has been down 15% for the past year, it would be considered a bear market.
A bull market is just the opposite. A bull market is when the stock market has been increasing faster than the average. Again, indexes are usually used as a benchmark to determine a bull market. If the historical average return for an index is 12% and for the last year or so bull market it has been 16%, then it is a bull market.
What causes a bull or bear market? These markets fluctuate with the economy. If the economy is doing poorly and there is a recession, the markets are bearish and will go down with it. If the economy is doing especially well and these businesses are booming, a bull market will result.
When you see that there is a bull market, you may be tempted to think that this is the best time to invest. This isn't necessarily the case. We could be at the peak of a bull market and you wouldn't know it. You might see all the prices shooting up so you buy a lot of stock. If it's the peak, it may soon begin to drop and you lose money, or it will stay the same and you won't make much. The same goes for the bear market. You may invest in the bear market because it looks low and can only go up from there, but it could keep going lower.
The best time to invest in the stock market is when the economy is coming out of a recession. This is when all the prices start to increase. You will never know for sure what the market is doing. The best thing you can do is invest consistently over time and concentrate more when entering a bull market and less when entering a bear market.
"Should I sell?" asked my friend Megan.
"Did you see what happened on Friday?" asked my friend Justin.
After two months of going straight up, the stock market is going down.
My friends want to know, is this is "the end"?
"The end" to them means that the stock market is going to crash.
Like it did in the 2008 stock market crash.
Everyone now wishes they sold in October 2007, when markets peaked.
However, an even greater number now wish they did something else.
Because after markets crashed, they bottomed in March 2009.
Next, they started going up... and never stopped.
This stock market behavior was so unexpected that it's left most investors out of the market. Every time the market's made new highs, these people feel "fear of missing out" (FOMO) anxiety.
This includes lots of rich and even sophisticated investors.
In fact, every time the stock market goes through a period of decline, most investors root for it to crash because they've missed out.
Is this the moment that vindicates these investors who have missed out and stayed out?
A Recipe for a Huge Bull Market
No. There's little chance of a crash right now.
The reason why is because the things that underpin the market are pointing higher.
Those things are future sales and earnings.
According to FactSet, earnings estimates hit their highest level of positive revisions in 16 years this quarter.
Broken down by sector, 10 of the 11 sectors recorded an increase in their earnings bottom-up estimates in January.
That means analysts covering nearly every sector of the market are saying that business conditions are incredibly strong right now for companies.
When you look at interest rates, they're still low. When you consider how strong business conditions are, inflation is still tame. Globally, every major economy in the world is growing.
Business conditions worldwide haven't been so good in decades.
Strong earnings, low interest rates, tame inflation and global growth is a recipe for a huge bull market.
Is This the Next Stock Market Crash?
This is what I believe is going to happen.
If you're a regular reader of my articles, you know that I believe the Dow Jones Industrial Average is going to hit 50,000 and then go higher.
I've been saying this since early 2016.
Now, the stock market may go down some more. However, it'll go back up, and then keep going up.
The bottom line, there is no stock market crash coming.
Yes, no question, seeing your stocks go down is painful.
However, this much I know from 25 years of investment experience: You'll never make the big money, hundreds of percent in gains and even thousands of percent in gains, unless you press through times like this.
It's Time to Buy
Now, if you've got money sitting in cash, and you want to avoid FOMO when the market keeps going up... you should go ahead and start buying.
Focus on stocks connected to the great mega trends of our time - the Internet of Things, precision medicine, new energy, fintech and the rise of the millennial generation.
These are the stocks I focus on because these stocks have the greatest growth potential. And I believe they will give you the biggest gains as this bull market for stocks continues.