It’s pretty common to hear the word ‘bull market’ and ‘bear market’ used extensively in the market. It doesn’t require you to be a market enthusiastic to hear these words. Even if you were to browse through the newspaper or just go through the news, these words tend to pop up. But what exactly is the bull market or the bear market and how are these two different from each other.
We here look into this aspect and let you know about it.
What is a Bull Market?
The term bull market refers to the situation where the market is going up on an aggressive note. It can be deemed as the condition when the market is on the rise and is generally noted by the aspect of share prices going high in this period. During this period, the uptrend tends to continue and any potential investor hopes that such a trend will continue along. As a result, investors and people alike tend to put their money into the market to help take advantage of the rising prices.
On a larger note, it is deemed that during a bull market, the economy of the nation is on the rise and major job opportunities are created.
The reason behind Bull Market
The major cause behind the bull market is the strong economy and the rising employment situation in the nation. The rising GDP and stable political stance also aid greatly in creating a bull market. The factors like industry growth help back the stock prices to soar high and have a formidable stance. Not only that, but companies also post quarterly results showcasing the profit levels and that tends to create an impact on the stock levels of the company for time being. With a strong economy and stable situation, the demand also increases as people have better purchasing power than they normally had creates a situation where the market uplifts.
What is a Bear Market?
The term bear market is the contrasting opposite of the bull market and refers to the situation when the market is on the decline. This refers to the condition when the market is in a downward trend and investors and people aside are scared of investing in the market.
On a larger note, it is deemed that during a bear market the economy is on the decline and the unemployment rates are high. During these times, people have low purchasing power due to high unemployment and cannot invest in the market.
The cause behind Bear Market
There are plenty of reasons behind the bear market but the major ones are the sluggish economy of the nation and the unemployment. The declining GDP impacts the nation as a whole and creates a dent in the stock market. It is also caused by the sector implosion that may put the industry at a risk and the change in taxation acts which can hamper the economy severally. Add to it the reasons like political instability, it’s a defeating situation for the market. All these tend to create a final domino effect on the economy denting it. Also, another major factor that affects the stock prices of the company is the announcement of the quarterly report. If there’s a negative stance on the quarterly report that tends to impact the stock price of the company.
The Characteristics of Bull and Bear Market and their Comparative Traits
Although the bull and bear market are signified by the direction of the stock prices going up or down, there are a host of characteristics that define the bear and bull market. We here look at some of the major characteristics and their respective happenings in the bull and bear market to help shed light on the contrasting aspect of these two. Read along.
- Supply and Demand status: During the bull market, the stance is most of the common investors tend to buy the securities while only a few sell them off. This is where the competitive prices tend to come along and the share prices hike up. While during the bear market most of the stockholders are looking to offload the shares while only a few are looking to buy for. This creates a situation where the share prices plummet down.
- The Mindset Behind Investment: The market is often affected by the sentiment of the investors. The way investors perceive the market tends to affect the outcome of the market and its status as a bull or bear. During the bull market, the market sentiment is on the positive side as investors and people are looking to join the bandwagon and invest in the market hoping to encash on the momentum and generate profits. Whilst during the bear market, people perceive the fear and tend to share negative sentiment regards the market. During this time, they look to offload their income from share market to other fixed income instruments which creates a decline in the share market.
- The Economic Aspect: If you look at the economic aspect, then the bear and bull market is often defined by the economy of the nation as the market and economy are often related to each other. During the slow or weak economy, the bear market is prominent while during the strong economy, the bull market is on the rise. When there is a slow economy, the end consumers tend to have low spending levels and that hits the investment field as a whole while during a strong economy, people tend to spend more of their money.
What to do during each market?
As an investor, there are different things you tend to go through while investing and the word bear market or bull market is sure to create chaos in the mind. But there are ways you can navigate around and use the situation accordingly to your advantage.
During the bull market, it is advised that you take advantage of the uptrend by buying stocks early during their rise so that you can encash them later for a higher amount and book profits. While in the bear market you can look to offload those shares which look to dropdown. However, if the market tends to be only for a temporary then hold onto it and wait for a turnaround later on. There’s also the concept of value investing where value investors tend to look for those shares which are undervalued during the bearish market and invest in them so that they can rise along later to reach the optimal value.
The bull market and bear market are the narratives describing the market sentiments and the way the economy is performing. These tend to have an impact on the investment and it’s down to the investors alike to curate the condition to their needs. It is advised that you step into the market with a clear idea of the market stance and look forward to investing in the stocks which seem to give you better returns over a period of time.