Understanding Market Cycles: What Every Investor Should Know About Bull and Bear Markets

Written by Haider Saleem
Journalist and Political Analyst | LinkedIn / X

Markets move in cycles – rising, correcting, and recovering over time.

Two dominant phases define market cycles: bull markets, when prices are rising, and bear markets, when prices are falling. These cycles affect your portfolio’s performance.

This article explores:

1. 1. What are bull and bear markets
2. 2. Why market cycles matter
3. 3. What invesoters should consider
4. 4. Investing during these cycles
5. 5. A comparison table of bull vs bear markets

What Are Bull and Bear Markets?

Bull Market

A bull market is a sustained period when asset prices – especially equities – rise by 20% or more from a recent low. It reflects widespread optimism, strong economic data, and robust investor confidence. Demand for stocks is high, and selling is limited.Historically, bull markets tend to last longer and deliver higher returns. For example, Australian market data shows bull markets have averaged 6.7 years, sometimes delivering gains exceeding 900%.

Bear Market

A bear market, in contrast, is defined by a 20%+ decline from a recent peak. These periods are marked by falling investor confidence, economic slowdowns, rising unemployment, and general pessimism.

Goldman Sachs outlines three types of bear markets.

1. Structural: Triggered by major financial imbalances (e.g., the 2008 crisis).
2. Cyclical: Linked to economic downturns and tightening monetary policy.
3. Event-driven: Caused by one-off shocks like pandemics, wars, or tariffs.

Each varies in severity and duration, with structural downturns being the most damaging and prolonged.

Why Market Cycles Matter

Market cycles are not just theoretical concepts – they shape investment outcomes:

• Bull markets offer opportunities for growth, but excessive risk-taking can leave portfolios vulnerable.

• Bear markets create fear, often prompting emotional decisions like panic selling or abandoning long-term plans.

Recognizing these patterns helps you stay grounded during both euphoria and despair.

How Long Do These Cycles Last?

• Bull markets (since 1942) in the S&P 500 have lasted about 4.2 years on average, delivering ~149% returns.
• Bear markets average 11 months, with a typical decline of –31.7%.

UBS analysis shows that even in severe “super bear” scenarios, diversified portfolios tend to recover over time – especially when investors avoid locking in losses.

Investor Psychology During Cycles

Investor sentiment often amplifies market movements:

• In bull markets, optimism fuels further gains.
• In bear markets, fear causes investors to sell, deepening losses.

UBS highlights that the real danger lies not in temporary paper losses, but in locking in those losses by selling at the wrong time.

What Should Investors Consider?

1. Structure Around Your Time Horizons

UBS recommends segmenting your portfolio using the Liquidity, Longevity, Legacy model:

• Liquidity: Cash and short-term bonds to cover 1–3 years of needs.
• Longevity: Long-term investments such as equities, REITs, and gold.
• Legacy: Assets meant for future generations or charitable goals.

This structure allows you to ride out downturns without needing to sell growth assets prematurely.

2. Diversify

Spreading your investments across:

• Sectors (e.g., tech, healthcare, consumer goods),
• Global markets,
• Asset classes (like sukuk and physical gold)

…can help mitigate losses without compromising on Shariah principles.

3. Rebalance Regularly – Especially in Volatile Periods

Bear markets can create opportunities to buy undervalued companies. Rebalancing ensures your asset allocation stays aligned with your goals – without requiring market timing.

Is It Wise to Invest in a Bear Market?

It can be – if done thoughtfully. Bear markets often bring down the prices of high-quality businesses. But not all cheap assets recover. Focus on:

• Companies with halal status,
• Strong fundamentals,
• Low debt and solid earnings.

Event-driven bear markets, like during Covid-19, often recover within a year. Structural ones take longer, but may still offer selective opportunities.

What Should You Avoid?

• Panic selling.
• Trying to time the bottom.
• Overreacting to short-term news.

Instead:

• Stick to your strategy.
• Use your liquidity reserves if needed.
• View downturns as part of a long-term journey.

What If Markets Go Sideways?

Not all cycles are clearly up or down. Sometimes markets stall.

During these periods:

• Income-generating assets (e.g., dividend-paying halal stocks, sukuk) can help.

• Dollar-cost averaging can smooth entry points.

Bull vs. Bear Market: Quick Comparison

Feature	Bull Market	Bear Market
Trend	Rising (20%+ from low)	Falling (20%+ from peak)
Investor Mood	Optimistic, confident	Fearful, risk-averse
Economy	Expanding	Contracting
Investment Focus	Ride momentum, rebalance	Stay defensive, preserve liquidity
Halal Strategy	Diversify across growth sectors	Avoid panic selling; tap cash buffer

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