What is a Bull Market?
A bull market is when a major stock market index rises at least 20% from a recent low. A bull market generally happen during periods when the economy is strong or strengthening. Bull markets are often accompanied by gross domestic product (GDP) growth and falling unemployment, and companies’ profits will be on the rise.
One of the best non-numerical indicators for a bull market is rise in investor confidence. During these times, there is a strong overall demand for stocks, and the general “tone” of market commentary tends to be positive. And because companies can get higher valuations for their equity, there is a high level of initial public offering, or IPO, activity in bull markets.
What is a Bear Market?
A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
The causes of a bear market often vary, but in general, a weak or slowing or sluggish economy, bursting market bubbles, pandemics, wars, geopolitical crises, and drastic paradigm shifts in the economy such as shifting to online economy, are all factors that might cause a bear market. The signs of a weak or slowing economy are typically low employment, low disposable income, weak productivity, and a drop in business profits. In addition, any intervention by the government in the economy can also trigger a bear market.
The terms bear market and stock market correction are often used interchangeably, but they refer to two different magnitudes of negative performance. A correction occurs when stocks fall by 10% or more from recent highs, and a correction can be upgraded to a bear market once the 20% threshold is met.
Difference Between Bull And Bear Markets In Tabular Form
| BASIS OF COMPARISON | BULL MARKET | BEAR MARKET |
| Description | A bull market is when a major stock market index rises at least 20% from a recent low. | A bear market is when stock prices on major market index fall by at least 20% from a recent high. |
| Occurrence | Generally takes place when the economy is strengthening or when it is already strong. | Generally takes place when the economy is weakening or when it is already weak. |
| Investor confidence | There is increased investor confidence when the market is bullish. | There is reduced investor confidence when the market is bearish. |
| IPOs | There is usually a general increase in the amount of initial public offering (IPOs) activity when the market is bullish. | The number of Initial public offering (IPOs) tends to decrease when the market is bearish. |
| Investors | In a bull market, investors are more willing to take part in the stock market to make profits. | In a bear market, investors are more willing to get their holdings out the market in order to minimize loses. |
| Involves | Involves buying of stocks in large volumes. | Marks the selling of stocks in large volumes. |
| Cause | A bullish market is often a result of a strong and low unemployment rates. | A bear market is often a result of slowing economy and rising unemployment rates. |
| Average length | The average length of a bull market 2.7 years. | The average length of a bear market is several weeks or more than 10 months. |
| Implication | A bullish market is an indication of increased economic activity or massive growth in the economy. | A bear market can be an indication that a recession is coming. |
What You Need To Know About Bull And Bear Markets
- A bull market is a situation in which stock prices rise by 20%, usually after a drop of 20% and before a second 20% decline.
- Bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue for an extended period of time.
- There will be a general increase in the amount of IPO activity during bull markets.
- The onset of a bull market is often a leading indicator of economic expansion.
- A bear market is when stock prices on major market index fall by at least 20% from a recent high. Another definition of a bear market is when investors are more risk-averse than risk-seeking.
- Bear markets are often accompanied by recessions, falling investor confidence, and declines in corporate profits.
- Bear markets can be cyclical or longer-term. The former lasts for several weeks or a couple of months and the latter can last for several years or even decades.
- The causes of a bear market often vary, but in general, a weak or slowing or sluggish economy, bursting market bubbles, pandemics, wars, geopolitical crises, and drastic paradigm shifts in the economy etc.