Bearish

Bearish Meaning

Bearish Market refers to an opinion with regard to the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more that it may go down or correct in the near term, in consideration of events that are happening or bound to happen, which would drag down the prices of the stocks in the market.

Examples of Bearish Stock Market

Given below is a brief list of bear markets in the US when the investor may be considered bearish on the stock market considering a downfall resulting in a drop in stock prices.

YearEvent
1929Wallstreet crash leading to the great depression
1937-38Recession
1971Latin American Debt Crisis
1973Oil Crisis
1987Black Monday
1997Currency Crisis
2000Dot Com Bubble
2007-08Financial Crisis

Advantages

Disadvantages

Limitations

  • It may require significant patience for an investor who is awaiting a stock market crash so that he/she can buy cheap. Given the consideration that markets are not efficient, it may involve significant time for the stocks to reflect the decline or downfall, and considerable time may have already passed by.
  • Many of the investors are bullish in the stock market, and it would take a lot of grit, determination, and conviction to go against the conventional philosophy and method that is adopted by the bull investors who are predominant in the market.

Conclusion

Bearish Market is often the viewpoint of any investor with regard to a particular stock, instrument, or the whole stock market with a view that it would tend to go down in value. If successful, the investor may make a lot of money, or if his speculative position turns out wrong, he may often cause mass destruction by taking wrong positions on derivative instrumentsDerivative InstrumentsDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. read more. Bear markets cause economic collapseEconomic CollapseAn economic collapse refers to a severe contraction in the economy led by an extraordinary event (financial or structural) which is not a part of the normal economic cycle. It may lead to a decline in national growth, a rise in unemployment, and sometimes social unrest; therefore, it requires government or monetary authorities intervention.read more, markets go down, businesses slow down, and even jobs may be lost.

However, some investors tend to profit from such a phenomenon as they believe it would be the right time to buy stocks and instruments at a relatively cheaper price and then manage to sell off when the market tends to bounce back. It is this bearish view that tends to bring out efficiency in the market by facilitating short trades on securities that the market thinks is overvalued, thus reflecting investor and also the market sentiment. Hence even though the bearish view is considered negative in respect of the stock market decline, it does go a long way in having to contribute towards an efficient market.

This has been a guide to what is bearish and its meaning. Here we discuss the examples of the bearish market along with advantages and disadvantages. You can learn more from the following articles –

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