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Law Offices of Harold J. Cronk

What Are Bull And Bear Markets?

  • By: Joe Cronk
  • Published: December 8, 2021

Since World War II, it has taken about two years on average for the stock market to recover, or reach its previous high. The most recent bear market, which started in March 2020, was exceptionally short, ending in August when stocks closed at record highs. The previous bear market, the Great Recession, on the other hand, didn’t see a recovery for about four years. Most experts agree that a bear market is one in which securities prices have fallen 20% from recent highs, if not more, spawning widespread pessimism from investors.

One generally accepted measure of a bear market is a price decline of 20% or more over at least a two-month period. Generally, bull markets begin when stocks rise 20% from their low, and end when stocks drawdown 20%. However, some analysts suggest a bull Currency Risk market cannot happen within a bear market. In a secular bear market, the prevailing trend is “bearish” or downward-moving. An example of a secular bear market occurred in gold between January 1980 to June 1999, culminating with the Brown Bottom.

bull versus bear market definition

The S&P 500 ultimately lost a third of its value in just a few months before recovering. Both periods earn the bull/bear mascot combo because they grew or fell by over 20%. There’s a lot of debate here, and plenty of perspectives on how positive and negative market movements earned such visual mascots. The most commonly accepted reasons are simply nature and human history. Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website.

Bull Market Vs Bear Market For Investors

During a bear market, the economy slows down and unemployment rises as companies begin laying off workers. A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value. Because the financial markets are greatly influenced by investors’ attitudes, these terms also denote how investors feel about the market and the ensuing economic trends.

bull versus bear market definition

There’s more risk involved with investing in a bear market, but along with this risk comes potential reward. Short-term strategies are more useful when the market is volatile. You can purchase stocks at a lower price point and then sell them when the market recovers. Some investors choose to sell their existing shares at the first signs of a bear market and then buy them back at a lower price. If you choose this path, you can hold onto the shares through the duration of the bear market to profit when it turns bullish again.

What Is Bull Vs Bear?

Hence, if the price falls below the contracted price, the option holder will accordingly book a profit. Long PositionLong position denotes buying of a stock, currency or commodity in the hope that the future price will get higher from the present price. The security can be bought in the cash market or in the derivative market. The course of action suggests that the investor or the trader is expecting an upward movement of the stock from is prevailing levels.

Most of the sectors that contribute majorly to the GDP of the country perform extremely well and relish positive outlook from the analysts. The current bull began on March 9, 2009, when the stock market finally stopped going down after losing more than half of its value during the Great Recession. On Wednesday, the current bull will have gone a record 3,453 calendar days – nearly nine and half years – without a decline of 20 percent or more.

Generally, there’s stagnation or a downward trend, people’s confidence in the economy is low, and more people are selling stock than buying. A bear market is also a good indicator of a recession — a long-term period of negative growth. As previously mentioned, investors are the ones who begin a bull market. When they feel that prices will start to rise and continue doing so for an extended period, they start buying stocks and are optimistic about their return on investment . The increased optimism among investors likewise causes stock prices to continue rising. After a time, bull markets reach a point where investors experience irrational exuberance, causing prices to rise too high.

A board full of bulletins meant the market was strong, while a bare bulletin board meant the market was weak. If a country’s GDP is high that means consumer spending is also high — a common indicator of a flourishing economy. Disposable IncomeDisposable income is an important mechanism to measure household incomes, and includes all sorts of income such as wages and salaries, retirement income, investment gains. In other words, it is the amount of money left after paying off all the direct taxes.

Bear markets typically follow a loss of investor, business, and consumer confidence. While financially painful, the bear market in 2020 was short-lived and relatively small compared to other bear markets. Once you know your goals and their timeline, you can build your portfolio’s asset allocation. This involves choosing the selection of investments within your portfolio and what percentages they’ll hold. For instance, someone nearing retirement may want to steer clear of individual stocks since they can be quite volatile.

bull versus bear market definition

The market is mentioned as bulls when the overall market scenario is positive, and the market performance is on the rise. A bearish market is when the performance of the market is on the decline. In the first phase, Investor sentiment and prices of securities are very high, but the investors are extracting maximum profits and exiting the market. BearishBearish market refers to an opinion where the stock market is likely to go down or correct shortly. It is predicted in consideration of events that are happening or are bound to happen which would drag down the prices of the stocks in the market.

How Long Does A Bull Market Last?

Bull and bear markets are key investing lingo and symbols, capturing positive feelings or negative ones . There’s no official rule, but a bull market tends to refer to a 20% increase in a market over time from its bottom, while a bear represents a 20% decrease from its top. In general, “bull” positivity or “bear” negativity can refer to new york stock exchange upward or downward movements of almost anything, like individual stocks. And you’ll even notice investors saying they’re “bullish” on an industry with growth potential or “bearish” on a stock they think will drop. Prices continue to climb, and after stocks gain 20% or more, a bear market is considered over, and a new bull market begins.

  • In sum, the decline in stock market prices shakes investor confidence.
  • While financially painful, the bear market in 2020 was short-lived and relatively small compared to other bear markets.
  • For cryptocurrency, most especially, the price of a given cryptocurrency is largely influenced and driven by public confidence in an asset.
  • Supply and demand are the bread and butter of economics, so it’s good to know how they’re affected by bull and bear markets.
  • Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here.

On the other hand, the bearish phase is said to start when stock market moves down by 20% or more. Investors need to follow a different strategy in each phase to make returns. When the stock market trend is downward, you should avoid smaller companies. Companies that are just starting don’t usually have the financial security to withstand poor market conditions. A market correction is where prices decrease between 10% to 20% and usually last two to four months.

Then investors begin to sell, which causes prices to fall again, creating a seller’s market and bringing a new bear market. In a bull market, investors can take advantage of rising prices by buying early before stock prices skyrocket. Investors can focus on growth stocks with higher return potential. “Bull market” is a phrase used to describe an economic environment that is growing and optimistic.

International Investments

In fact, a bear market could describe any market, including oil or real estate, if the prices are declining. Capitalize on low-priced stocks that are likely to increase in value once a bear market phase is over. But don’t overdo it and get too risky – pay attention to which stocks are likely to bring a good return on investment and which ones are low in value for a reason. Though nearly a decade has passed, the housing market crash of 2008 is still a fresh wound for many people. In its wake, millions of workers lost their jobs, homeowners lost their houses, and consumer spending fell by 8%.

The term “bull vs. bear” denotes the ensuing trends in stock markets – whether they are appreciating or depreciating in value – and what is the investors’ outlook about the market in general. Bulls think prices are going higher, while bears think they’re headed lower. Try not to get caught up in trying to anticipate when a bull or bear market might begin or end. Think of your investments as part of your overall financial plan and do your best to take a long-term view.

In a bull market, the increase in stock market prices boosts investor confidence, which causes investors to put their money in the market in the hope of obtaining a profit. Many investors wish to buy securities while few are willing to sell. On the contrary, in a bear market, the demand is significantly lower than supply as more people bull and bear market are looking to sell than buy. A bear market is essentially the opposite of a bull market, meaning that it is a prolonged period of declining prices. A bear market generally occurs when prices have declined by at least 20 percent from a recent high. Bear markets have historically not lasted as long as bull markets in the stock market.

The Terms Are Simple But Their Causes Are Incredibly Complex

As such, you can purchase cryptocurrencies when they are at lower price points and sell them at the peak of the next bull market. Looking at current cryptocurrency prices is one of the quickest ways to determine whether one is in a bullish or bearish market. Moreover, rising asset prices indicate market confidence and an incoming bull run.

In both cases, the zoological terms tend to kick in when prices rise or fall by 20% or more. When it comes to individual investors, a “bull” expects stocks to rise, while a “bear” acts on the assumption they will fall. Modern stock market history is defined by ongoing bull and bear periods — eras of booms and busts in which stocks are in general rising by over 20% and then periods where they fall over 20%. While you’ll noticed stocks have generally moved higher over the history of US stock trading, there is a non-stop cycle between periods of ups or downs. Investors have enjoyed 11 bull markets since the end of World War II, each accompanied by an eventual bear market response. Bull markets occur when there is a sustained rise in stock prices, and they are typically accompanied by elevated consumer confidence, low unemployment, and strong economic growth.

Where Do Investors Tend To Put Their Money In A Bear Market?

A bull thrusts its horns upwards, while a bear swipes its claws downward. A bear on the other hand will swat downwards with its paw when it attacks, like the downward trend of a recession. That, coupled with the fact that bears can also be found hibernating for long periods of time, makes it no surprise that “bear” will be used to describe slow market periods.

Negative Investor Sentiment

When stocks fall during a bull, the dip is called a “correction.” But the thing about corrections is that while they’re happening, you can never be sure if the stock will, in fact, recover. To make matters worse, some corrections can be sudden and exceedingly steep, plunging by 10% or more. A market indicator is a quantitative tool that is used by traders to interpret financial data in order to forecast stock market movements.

Author: Thomas Westwater

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