Bull or Bear Market: Which One Are We Headed For?

By Patrick Lawler and Tucker Roeder

The stock market has seen a lot of volatility and uncertainty over the past few weeks, and the debate between bulls and bears has never been more heated. Investors, economists, and financial experts are trying to make sense of the current tumult and are divided into two distinct camps over which way the market will move next.[1] So, are we headed for a Bull or Bear market? Let’s take a look.

A bear investor and a bull investor are two terms used to describe the outlook of an investor in the financial markets. A bear investor, also known as a “bearish” investor, is someone who believes that the overall direction of the market is downward or “bearish.” They typically have a negative outlook on the market and expect that stock prices will fall. Bear investors may sell stocks they own, short sell stocks, or hold onto cash or other assets that they believe will hold value better during market downturns.[2]

On the other hand, a bull investor, also known as a “bullish” investor, is someone who believes that the overall direction of the market is upward or “bullish.” They typically have a positive outlook on the market and expect that stock prices will rise. Bull investors may buy stocks they believe will perform well or hold onto stocks they already own in the hopes of seeing gains in the future.[3]

The main difference between bear investors and bull investors is their outlook on the market. This outlook potentially can influence investment decisions and strategies, as bear investors may take a more defensive approach to investing, while bull investors may be more aggressive in their investments.

The bulls argue that the stock market’s current movements are normal, and do not represent any long-term trend. They point to the recent cooling off in the US inflation leading to a possible prompt from the Federal Reserve to cut the interest rates this year, arguing that typically stocks will rise when interest rates fall.[4] This has had the effect of stabilizing the markets, and the bulls argue that as the economy continues to recover, so will the stock market.

Jeremey Siegel, a retired Wharton professor and author of “Stocks for the Long Run” believes that stocks will keep rising as inflation moderates, which “could prompt the Fed to end its interest-rate hikes, or even start cutting them, which would boost equities.”[5] Similarly, Tom Lee, head of research at Fundstrat, and one of the biggest bulls on Wall Street, believe stocks will hit a record his by the end of 2023, expecting the &P 500 to rise another 18% this year to 4,800.[6]

 The bulls’ argument is based primarily on positive economic indicators such as strong GDP growth, low unemployment, and rising consumer spending.[7] Additionally, historically low interest rates have made stocks more appealing investments than bonds or other fixed income instruments.[8] If the bulls are right, clients stand to benefit from higher returns on investments and the ability to buy stocks at discounted prices.

The bears counter that the current movements in the markets do not represent any kind of normalcy, but rather those with a positive outlook should expect a rude awakening with recession risks with stocks plummeting.[9] They point to the increasing levels of debt, both personal and public, and the shaky economic foundations that are a result of the pandemic.[10] David Rosenberg, found and president of Rosenberg Research argues that stocks haven’t hit rock bottom yet, and any bounce back we had earlier this year was what he refers to a “bear-market rally,”[11] which is a temporary rise in stocks prices after a plunge into a bear market.[12]

Michael Burry, “The Big Short” investor, in dire warnings about the US economy suggests that stocks could crash. He also “warned the S&P 500 could plummet over 50% from its current level to below 1,900 points, and recently tweeted one word to investors: “Sell.””[13] Burry is not alone in his opinion, according to Rosenberg, founder and president of Rosenberg Research, “the S&P 500 could drop from about 4,100 points today to as low as 3,000 points — a 27% decline – if the Fed remains hell-bent on achieving its 2% inflation target.”[14]

How can the average investor know for certain whether it’s up or down from here? You can’t. That’s why you shouldn’t be betting one direction or another.  The most important advice is to create a diversified portfolio that can withstand both bull and bear markets. This means spreading out investments across different asset classes to diversify risk, utilizing strategies such as dollar-cost averaging and portfolio rebalancing, and investing in long-term strategies such as index funds or ETFs.[15], [16]

Large bets like moving a big position to cash or moving all equities into large cap growth tend to be guesses motivated by fear or greed and are rarely consistently correct. A well-diversified portfolio is key to surviving either a bull or bear market. We know this time can cause fear and anxiety, so reach out to us and we can help you build a resilient portfolio, no matter Bear or Bull market.