Difference Between Bull Market and Bear Market

Investing in stocks

The stock market is responsible for the growth of nation’s economy. Investing in stocks is partaking in the economy. And it is commonly understood that a country’s economy is its pulse. This pulse depends on various factors. Depending on situations, the market could be up, or it could be down. In financial terminology, upmarket is called a Bear market and a down market is termed a Bull Market.

A Bear market is when the stocks rates are rising, and the entire market scene is upbeat. On the contrary, if the market stocks are falling, it is referred to as a Bull market. These terminologies came into existence because of the natural fighting styles of the respective animals. A bull will “lower” its head, so as to thrust its horns when it feels threatened. A bear would, however, stand on its hind legs and swing its paws down on the opponent from high up above.

To delve into the economic details of it all, a bull market is when the economy is running very smooth. The GDP of the economy is rising and so is job availability. Selecting stocks becomes easier in a bear market scenario. This is when investors are optimistic about the shares they invest in. They believe that the stocks will rise and thereby earn the reputation of having a “bullish outlook.”

A bear market, on the other hand, is the market situation when there is a considerable fall in the economy. The prices of stocks decline. Naturally, stock trading lessens. Investors are not too keen on investing, and they have a negative response to the market scenario. Consequently, they sell securities. The returns are also low. The overall outlook of the market is pessimistic. Such a market scenario is often accompanied by a recession.

Key differences between the two market scenarios:

  • Performance:

When the performance is rising, it is referred to as a Bulls market. If the performance of the market is declining, it is referred to as a Bears market.

  • Outlook:

Outlook is the investor’s opinion of the market. In a Bulls market, the outlook is optimistic. In a Bears market, the investor’s opinion of the market is pessimistic.

  • Position

In a Bulls market, investors take a long position, which is to say that they rather buy security. This is because when the prices go up beyond the contracted price, they can make a profit. On the contrary, in a Bears market, investors take a short position. That means they sell the security so that when the prices go below the contracted prices, they make a profit.

  • Stocks

In a Bulls market, stocks are always on the incline. Bears market has stock prices declining.

  • Growth

When dominated by Bulls, an economy prospers. If the Bears start dominating, then you can be sure that you are in a declining economy.

Investing in stocks is a dicey affair. It requires market research. Knowing the nature of the market before you invest is therefore pivotal. In conclusion, it always comes in handy to know the deal before you play your hand.

Related posts