Finance News

Bull vs Bear Markets & what they imply for traders

If you're curious about investing, or if you've ever heard investors talk about how the market is doing lately, you may have come across the terms Bull market and Bear market. These two terms describe the way the market is doing – a bull market is generally up and a bear market is generally down.

Whether a given market (or the economy as a whole) is trending in a bull or a bear direction can have a huge impact on the way investors use their money – and it can be a little more complicated than you might think. Read our guide for a complete understanding of bull markets versus bear markets and the impact these trends have on investor activity.

This article covers:

let us Start with a bull market definition.

What is a bull market?

A bull market is a sustained 20% (+) rise in stock prices from the most recent market low. Bull markets arise when the stocks of many companies continue to appreciate in value over time, adding money to their portfolios, and potentially stimulating growth in other parts of the economy.

When businesses go cashless, they often have the capital to hire more people. Hence, bull markets are sometimes associated with low unemployment, especially when the bear market is expanding beyond a specific industry or branch of the economy.

How long does a bull market last?

Of course, all good things have to end, and bear markets usually do too. However, the bear markets tend to last for a while 2.7 years on average. This is definitely enough time for investors to take smart steps, grow their money, and plan their next steps in advance.

It's also good to know that the economy in general has continued to grow over the long term. Market indices have generally seen an upward trend over the decades, meaning the economy has been rather bearish for most of the time. (Note that investors can also be labeled bearish if they take an aggressive stance on their investments.)

However, one thing that is important is that no one can technically predict how long a bear market will last, even if the market is trending up in the US long termit is still possible lose money in the short term – people do it every day.

What is a bear market?

The bear market significance is when the economy is in decline; Stock prices are starting to fall and investors get nervous if they risk their money. Much like the up move, you could also hear people talking about investors being bearish on certain stocks or the market in general. This means that they are feeling the discomfort in the market and prices may fall.

Unlike a bull market, bull markets can be accompanied by an increase in unemployment. This is because the stock market declines before a recession, causing companies to tighten their belts and lay off employees who can no longer comfortably afford them.

It's important to note that this isn't actually a bear market unless stocks are down 20% or more. For example the Great Depression and the 2008 recession both extreme cases of bear markets.

How long does a bear market last?

The duration of a bear market can vary. The depression and recession lasted for years. In general, though, market downturns last around 289 days – only under 10 months. One of the biggest differences in looking at bull markets versus bear markets is that bear markets tend to be shorter.

For long-term investors – for example, those investing in index funds – it is usually advisable to wait for the market to decline, as bear markets generally follow bullish markets once adverse conditions have materialized.

However, for short-term investors looking to make profits quickly, a bear market can be a difficult challenge. During a real bear market, some companies can lose their stock value significantly or even cease business altogether. This is one of the reasons investors should rate theirs Risk tolerance before you decide to invest Strategy.

Differences Between Bull and Bear Markets

As you can probably guess, there are some significant differences between bull markets and bear markets. However, in order to better understand the conditions that lead to each individual – and what to look out for To protect your capital, it is important to highlight a few of them the main differences.

Supply and demand for securities

Supply and demand are the be-all and end-all of the economy, so it's good to know how they're influenced by the bull and bear markets. In a bull market, there is tremendous demand for stocks and stocks. Investors want to experience all growth companies. This leads to a lower stock supply, which increases the price.

During a bear market, the supply is high – but no one is buying. Investors fear that the stocks will continue to decline in value, making them risk averse and unwilling to bet on them Capital. Stock prices are going down as there is a bigger one Supply as demand.

Settings of the investors

As mentioned above, bullish and bearish are terms used to describe investor sentiment towards the market. You could say that investors have recently been bearish on oil futures or bullish on software companies.

But investor attitudes also affect the stock market and create a kind of feedback loop. When the market is in trouble, investors are often unwilling to risk their money, which creates an atmosphere of doubt. That doubt ultimately contributes to the decline in stock prices as the decline in demand causes the value of stocks to fall.

In contrast, bullish markets create a lot of confidence, so more investors are eager to make a profit. This also creates a positive feedback loop and the Due to the high demand, share prices are trending upwards.

Indicators of economic development

The final difference to note is that, as mentioned above, bull markets are usually associated with strong economies and bear markets are usually associated with economies in trouble. When you hear the news about a bear market – especially a serious bear market – you can be sure that it is the economy on the way to a difficult phase as the stock markets are doing generally related to the way the economy is doing as a whole.

How COVID-19 sparked a bearish mood

Recently, the COVID-19 pandemic has created a sharp bearish sentiment among investors. This is because stocks depreciated as governments were forced to restrict consumer and business activity, and many people began to lose their jobs.

This started a chain reaction as more investors feared the markets would collapse even further and their investments turned bearish. This turned and the Dow Jones Industrial Average fell over 20% – the worst drop since 1987.

However, since that initial decline, the rebound has been consistent and there has been news about the vaccine Widespread in the coming months, investors begin to approach the market with more optimism.

What should you be doing in each market?

Here's the big question: if you're looking at a bear or bull market, what should you do? Let's take one look at everyone.

Bull market

In general, when the market is trending up, there are two pieces of advice you may hear from investors:

Take advantage of rising prices.
Buy stocks early and sell them at their peak.

This is true if you are investing in the short term. Note, however, that this is easier said than done. It is good to remember Every investment involves a certain amount of risk. Because of this, many investors choose to make money slowly and steadily low risk investments.

If you are When investing for the long term, it is usually wise to get an estimate of your investments and then wait your time You are ready to use the money.

Bear market

Bear markets are trickier as it's hard to tell which companies can survive and bounce back with new profits when the storm clouds are clear and which ones just go down – and take your capital with them. However, if you are investing in the short term, it is a good idea to research which companies are likely to survive and only then consider investing in them.

And remember, there is always a good risk associated with it invest in a volatile market.

If you are into it for the long term (like an index fund or retirement account), it is best to avoid panic selling. Chances are, like that History of the stock market has proven that the economy will recover and that your holdings will regain value.

The central theses

Here are some things to keep in mind about bull markets versus bear markets:

A Bull market It does so when stocks increase in value, and often the economy and employment do so too. They usually last a couple of years.
A Bear market is the opposite: stocks lose value, the economy looks uncertain, unemployment could rise. Bear markets usually only last a few months, but they can last longer.
Settings of the investors have a lot to do with the way markets perform – investors could feel bullish, boost stock prices, or bearish, causing them to decline.
Ultimately, your investment strategy depends on yours personal risk tolerance. However, it is often wise to buy low and sell high during a bull market and be careful when investing in a bear market as the risk is much higher.

If you are new to investing or just want a helping hand with it, it is a good idea to consider monitoring mint investments. With the Mint app, you can keep track of your portfolio, savings, retirement and other accounts in one convenient place. Regardless of which direction the market is headed next, you can keep an eye on your stocks.

Swell:

Investor.gov: Bull market, Bear market | Forbes | CNBC

Register with Mint today

From budgets and bills to free credit scores and more
Discover the effortless way to stay on top of things.

Learn more about security

As good as new Google Play As good as new iOS App Store

Related Articles