Bull and Bear Markets
The terms “bull” and “bear” describe how the stock market periods. How they generally move over a given time period in one of the directions of the market:
- The “bullish” period describes the time of value appreciation. The market goes up.
- The “bearish” period describes the period of value depreciation. The market goes down.
The direction of the market is a major factor impacting investors’ portfolios. So, it’s important to know and understand these general market trends.
Capital markets are cyclical (also see Phase of a Bubble) For every bull market, a bear market follows. Since 1928, there have been 27 bull markets and 26 bear markets.
Investors speak about the bear market when stock markets drop by 20% or more from a particular point. Since also time period plays a role, if we talk about the whole market, drop needs last over a period of at least two months.
In contrast, a significant but sudden drop in the stock market may not be deemed a bear market.
The bull market is the opposite. There is no universal metric used to identify a bull market, so the most common definition of a bull market is a period in which stock prices rise by 20% or more.
There are several things that tend to accompany a bull market:
- Bull markets happen during periods when the economy is strong or strengthening.
- Bull markets rise when the investor confidence is high.
For investors, it becomes very important to understand the current market movement. It’s more important to identify and be aware of the current global or midterm trend. Secondly it’s important to identify changes from bear to bull or vise-versa early and plan for the next cycles in advance. The Global cycles and sentiments influence the price development of every stock and derivative and cannot be ignored.