Typically, during a downturn, investor uncertainty and pessimism about the state of the economy prevail in the markets. Sometimes this is due to declining employment or global trade wars. Asset prices are falling because investors decide to exit the market and sell their assets so as not to incur even greater losses.
Such periods are called bear markets.
Bear Markets Explained
Usually, they last about 14 months on average. Under these conditions, the S&P 500 index, which takes into account the value of the 500 largest companies listed on American stock exchanges, usually loses about 33% of its value. The most notable recession occurred about ten years ago: the S&P 500 lost almost 57% of its value when the mortgage crisis led to the monetary crisis.
Although bear markets may test investors’ strengths, even during a general downturn, unexpected trends may be observed. Thus, the shares of some companies can reverse the trend and continue to grow. Conversely, when stock markets show good results, stock prices of individual companies may enter the bearish zone and fall sharply, even if other corporations in the index show good results.
Forex Bear Markets
Bear markets are also typical for Forex.
They determine the current market trends. In a bear market, traders are looking for opportunities to enter the market when prices are falling so that they can purchase once they are sure that the market has reached its peak. Indices are also present in the Forex market hence Forex indices explained in this article will provide a basic understanding of whether they should be trusted in the bear markets or not.
Indices as a Safe Haven
Are indices a safe haven during bearish markets? We have already said, that bear markets are periods characterized by a decline in prices and usually they last for a long time. Indices, like Dow Jones, S&P 500 provide only a general overview of the market.
For instance, if in 30 stocks 15 declines by 3% and another 15 by 1% it will only show the average number and is not really a safe haven an investor should look forward to. Indices do not always work the same way – sometimes they are good, sometimes they are not. If an investor or trader wants to improve his or her profits, indices should be taken seriously.
CDs (Certificate of Deposit) are generally more conservative and safer possibilities during the market downturn and it provides bunch of good options for investors.