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.

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

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.

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.

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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