Common Financial Terms & Concepts

Bull vs. Bear Markets: Definition, Meaning & Difference

Have you heard of Bull vs. Bear Markets? To describe the market conditions, the “bull” and “bear” terminologies are very commonly used and you must have heard these stock market terms more often during this pandemic COVID-19.

Although both the names are of fearsome animals, but here they are used in a symbolic way and represent different market conditions. The terms “bullish” and “bearish” describe how markets are doing in general i.e. whether they are appreciating or depreciating in value.

The stock market has many terminologies which an ordinary person wouldn't understand. However, some of the terms might be pretty common, such as the market's crashing, Sensex, NIFTY, and others. Such terms define the stock market, but what would you call when the stock market behaves in one particular pattern? Its where the bull vs. bear terminology comes into the bigger picture.

Before jumping onto a detailed explanation about what is the bear market and what is the bull market, let us understand the origins of these expressions.

Bull Market vs Bear Market: Origin

If we observe that bulls attack by bringing their horns upward, that is why the bull market is associated with rising prices. On the other hand, bears attack by swiping their paws downward which is why the bear market is associated with falling prices.

What is a Bull Market? Definition & Meaning

A bull market indicates that the stock prices are rising. The economic environment of a country is considered optimistic and the industries seem to be growing very well. The market is expected to grow further throughout a bull market.

According to the US Securities and Exchange Commission, a bull market is a period of more than 2 months, where the market rises at least 20% in broad-based market index funds.

In simple words, a bull market is where the stock market sees extreme inflation where the stock prices are sky rocking like anything. A Bull market is where things are declining, and the market isn't doing that great. Now that you know what each one means, let's get on with the other things associated with it.

The term ‘bull market’ can also be applied to bonds, real estate, commodities or currencies.

Advantages of Bull Markets

1.When the stock market turns into a bull market, long term financial gains increases substantially. Its where a concrete plan of earning rewards is higher, but users should know how to plan their investments and allocate financial resources.

2.In a bull market, opt for a phased approach to get a better price for selling the stock. You don't always get the desired price, but coming close or availing a profit is feasible.

3.Many things can happen in such a market where prices might seem too good to be true. For both the long term and short term, investors can enjoy benefits from the investments made.

Disadvantages of Bull Markets

1.The stock market is an unpredictable phase. You never really know when the bull market might become a bear market, and it takes seconds for it to convert. Thus, incurring a substantial amount of losses is evident provided something goes wrong.

2.Investors are looking to make money off the stock market. If the supply is not there, demand will be greater. There are few to sell with securities, but the demand is higher, which again causes scrutiny and differences.

3.The aftermath of a bull market is the worst. No matter how high the market might go, in the end, is has to come down. If you know what you're doing, then it's okay; if not, it will crush you.

Bullish Market Example:

You know, the highest returning bull market was between 1987 to 2000 when the stock prices sky-rocketed 582% in that period.

Characteristics of a Bull Market:

-In the bull market, GDP of a nation becomes higher than the previous term. This also means that the consumers are spending more and the economy is flourishing.

-Rise in corporate profits which in-turn helps in the rise of stock prices.

-Increase in the IPO activities.

-Unemployment decreases and the employment rate in the country increases.

What is a Bear Market? Definition & Meaning

It is the exact opposite of a bull market where the stock prices consistently decline. Pessimistic economic environment is created where people have low confidence in the economy and they start selling stocks more than buying.

Basically, the economy remains weak and continues weakening during a bear market.

Advantages of Bear market

1.Investment prices reduce when stock prices reduce. Its where many can enter the market and get shares for lower prices for long term investment plans.

2.Quite an informational market where it provides you the risk tolerance and risk-taking capabilities. While its tentative, learning the market from the bear market point of view makes the difference.

3.If you're looking to restart your portfolio with fresh stocks and minimal investments, then the bear market is the market you should look for.

Disadvantages of Bearish Market

1.Making losses in such a market are at the all-time high. You never really know what major blow might overturn your investments into nothing.

2.The meltdown of the market where it indicates the recession period in the country.

3.Speculation of the market becomes harder as no one can predict what might happen tomorrow.

Bearish Market Example:

Latest example can be the bear market of 2020 which began on 19 February, 2020 and shaved off 33.9% from the S&P 500. The bear market seen amid COVID fears is considered to be the shortest in the history as the 34% fall happened only in just 1 month (approximately).

Characteristics of a Bull Market:

-Unemployment rates become high as the economy slumps, companies lose their business which further result in layoffs & firings.

-Fall in stock prices.

-IPO activities decrease in a bear market.

-GDP of the nation falls and consumers start saving money and the majority do spend on necessary items only.

Bull and bear markets are handy from the user's point of view. Its where users have to decide which one is better for them and how they can make complete use of it for their gains.

Now, you may think which is the favourable market to invest! The answer is both. The key is to move opposite of the way most people are moving. So a smart investor buys when others are selling and sells when others are buying. But the most important thing in the whole process is always the correct timing. But, that isn't easy to guess! Plan your investments wisely may it be a bullish or a bearish market.

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Frequently Asked Questions or FAQs

Bull markets are identified when the stock sees a rally in its price, increasing, and there are lesser chances of it crashing. Conversely, a Bearish market is when the stock market plunges, and the stocks lose its value due to several reasons affecting its performance. Mostly the color green on a stock market chart is bullish, and the color red is bearish. However, these are prolonged over a couple of days to determine the nature of the market.

A bear market is the tendency of the financial market to take a negative turn for a long period of time, typically at least 2 months. The market experienced a general drop in prices for at least 20% from previous highs over at least 2 months.

We all dream of getting rich. A bullish stock market is a golden opportunity, if you already bought stocks when the market was bearish. So, let's see how can you get rich in a bullish market when the stock prices are rising.

A bullish market can be a great moment for any investor. A bullish market can be defined as a market condition when stock prices rise for a long period.