Movements in the stock market are never unidirectional. This is one things which every person indulging in stock trading or stock investing should understand. If the stock market goes up, it will be coming down at some point of time. Now, when it will be down is difficult to state, it depends on the domestic economic as well as global conditions.
Those who wish to know what a bear market is should understand that it is a phase characterized by steep fall in stock prices, low corporate earnings and low or negative economic growth. However, stocks are still sold and bought by the investors.
Some of these, after identifying the trends of the market, sells today and buy the stocks again at a considerably lower price and make whatever profit they can. The investments need to be made with a lot of care and intensive stock research to avoid any kind of unnecessary losses. Let us see some things about the bear market.
Poor Economic Growth
A bearish market trend is mostly seen when the economic growth of a country is way below the expectations. In such an economy, there are fewer jobs, low incomes and hence the inflow of money in the stock market is very low.
Stock prices can only rise with a positive buying sentiment. A situation such as economic recession or credit crunch affects global as well as domestic stock markets to a great extent.
Global crisis affects the domestic stock markets in a negative way. Low industrial production, currency problems and political instability in any part of the world have affected stock markets and led to a big downfall.
Lack of foreign institutional buyers can also cause the beginning of a bear market phase in the stock markets as the market heavily depends on the huge cash which these investors bring in.
Bad Corporate Earnings
Share price targets are given by stock market experts and other analysts depending on the earnings generated by companies listed on the stock exchange. However, if the corporate earnings are too poor, then expensive valuations are not justified at all and there would be a downgrading of the stocks of companies.
In fact, in such markets, bulls take the back seat and the markets are ruled by bears or those who go short by selling stocks first and then covering up their positions at lower levels on an intra day basis.
Lack of Confidence in Investors
Each investor wants to earn money and the falling stock prices can affect this confidence greatly. This will lead the investors to prefer other forms of investments like gold or real estate over stocks. This further makes the situation difficult and it is evident that the market situation will improve only when the macro economic factors are back to normal.
What Investors Can Do
- Avoid penny stocks, they may show sudden upward movement but can cause heavy losses at times.
- Take a call on the valuations and try to decide how expensive stocks are from their just value.
- Invest small amounts where the stock correction is complete.
- Avoid investments in falling stocks.
- Take a buy call only after stock consolidation is complete and the company is witnessing better business growth.
DISCLAIMER: This information is just for reference purposes and does not recommend any stock market transactions.