Money 101  >  Explainers

Bull vs. bear markets

POSTED ON November 04, 2019

The Bull and the Bear have always been two of the most important icons of the stock market. In fact, if you searched for 'stocks' on Google, you will most likely see images of bulls and bears, in addition to those of graphs and charts. 

Generally speaking, good market conditions are referred to as a ‘Bull Market’. This is because when bulls attack, the trajectory is upward. But technically, a rally is only a ‘Bull Market’ if the stock market has grown by at least 20% for a certain period.

Bull Market

A Bull Market is typically led by the willingness of investors to put in more money. This may be caused by positive business landscape, economic or political developments.

This risk-on sentiment and confident mindset of investors make them ‘bullish’ about the market in general, or about certain stocks in particular.

Bull Markets usually span a few years and are characterized by strong GDP growth and a high employment rate.

Because of this ideal scenario, coupled with many investors turning ‘Bullish’, demand for stocks increases, causing prices to move up.

People then generally have more money to spend, leading to better sales figures for companies. This, too, helps raise stock prices.

Bear Market

On the flip side, bad market conditions are typically referred to as a ‘Bear Market’. This is because when bears attack, the trajectory is downward. Again, a correction is technically a ‘Bear Market’ only if the stock market has declined by at least 20% for a certain period.

A Bear Market is typically dominated by investors’ aversion to the stock market. This may also be because of negative business landscape, economic, or political developments.

This risk-averse mindset of investors makes them ‘bearish’ about the market or certain stocks.

But remember, Bulls and Bears are equally important for the market.

In fact, knowledgeable investors shift from Bullish to Bearish and vice versa, depending on market conditions.

Bullish investors won’t make money if they just keep on buying, in the same way that Bearish investors lose profit opportunities if they don’t buy.

Global news, domestic economic figures, and company performance reports should guide investors in their decisions. The market needs both bulls and bears because it (the market) only works when there are Bulls (buyers) and Bears (sellers).

 

Andoy Beltran is a stock broker and entrepreneur. He heads Business Development and Market Education for First Metro Securities. Andoy is a self-professed "soldier of love," who believes that "Your money will not invest itself. Do it."