Recurring themes or trends attach themselves to different cycles in the stock market. Stock prices trend lower in some cycles and higher in others. Market cycles can linger for years or be condensed into a number of months; they can even be a harbinger of broader change in the economy. Savvy investors have learned how to make profits regardless of market conditions.
When a bull market begins, investors have confidence in the ability of companies to produce profits -- sometimes despite actual results. The underlying trend in a bull market is that stock prices begin rising and do not exhibit any signs of sustainable weakness for about two years. In the 111-year period leading up to 2011, stock prices advanced 86 percent on average during nearly three dozen bull market cycles, according to Ned Davis Research data cited in a 2011 "USA Today" article.
Every few years, the stock market enters a bear market cycle, during which stock prices fall at least 20 percent over two months or longer. Over nearly five decades beginning in 1956, stocks experienced 10 bear market cycles, according to Standard & Poor's data cited on the The Vanguard Group website. Bear market cycles can also occur among a particular group of stocks. In 2012, the largest stocks that trade in the markets lost at least one-fifth of the market's value while the broader stock market was only down about 5 percent, according to a 2012 "USA Today" article.
Throughout history, both bull and bear market cycles have periodically extended beyond the typical duration. These periods are known as secular market cycles, and they can last longer than a decade. Sometimes, a secular market can pause, allowing shorter market cycles to occur. In a secular bull market, stock prices continually set record highs with intermittent periods of decline. In a secular bear market, which has happened only a few times in the stock market's history, stock prices persistently drop. Stocks can experience periods of reprieve and stabilize temporarily in a secular bear market.
Stock market cycles can be used to measure changes in the economic climate. For instance, in the six-month period before an economy enters a recession, the stock market declines about 7 percent on average, according to Fidelity Investments. During this so-called recession phase, investors tend to direct their money into sectors where demand remains consistent despite a contracting economy. Such sectors include health care and basic consumer goods.
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