What Is a Bunny Market and Does It Affect Your Retirement Strategy?
Thursday, November 3, 2016, 6:00 AM | Leave Comment
When the markets go up, we say the bull is running. When markets go down, the bear is roaring through. So what’s happening when a bunny market comes hopping in?
Bunnies hop around and don’t really get much accomplished. That’s a bunny market; one that is volatile, with rally spikes and sell-off dips. Over a period of time, however, it all remains basically flat.
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When do bunnies come hopping around?
Assuming the concept of a bunny market is a valid one, how do we know when those bunnies are likely to start hopping around?
Bunny markets tend to follow an economic downturn, that time when the economy is in the last stages of a recovery. Bunnies also show up after global disasters that discourage people from taking risks.
During a bunny market, investors generally tend to be wary of any stock and reluctant to put much faith in its performance. In short, investors play it safe during a bunny market.
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Should I change my retirement strategy?
When you set up your retirement portfolio, you developed your long-term plan with a comfortable retirement as the goal. You made plans on how to manage the rising stocks in a bull market and laid out your strategy for investing in a bear market.
The impact that a bunny market has on your retirement strategy is pretty much up to you. By nature, a bunny market is going to fluctuate a bit but really isn’t going anywhere. So any changes you make to your strategy probably won’t have much of an impact.
But there is the possibility, and you may need to deal with the bunnies in a slightly different way. Now may be a good time to formulate your strategy for handling a bunny market.
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Strategies for a bunny market
Investing is the name of the game when the bunnies are around but you need to tweak your tactics a bit. For example, investing more in stocks in the material, industrial and capital sectors is a better bet than going with consumer-based stocks. This tactic springs from the fact that bunny markets usually show up during economic recovery times.
Stay away from those all-or-nothing strategies; they don’t play well with bunnies. You’ll do better to take a give-and-take approach to the market. Don’t put all your money into one stock that looks promising or rush to pull everything out of a stock that’s tanking.
Bunnies don’t lay golden eggs. This means you’re not likely to strike it rich on a lucky stock during a bunny market. The chance of stocks being under or over market value is slim. Don’t despair, however, because this means that the risk you’re taking is lower.
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Attitude matters
A stock’s performance can be influenced by the attitude of its investors. If the investors hold negative views of a stock, they tend to sell it off. This generates a general pessimism toward the stock. On the other side, if a stock is viewed as favorable, the value will rise as investors buy the stock.
With more and more investors following the same trend, the track of a stock can be influenced. In a bunny market, investors tend to be defensive and hesitant to buy or sell. They just hop around, actually accomplishing very little.
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