Difference between Bull Market vs Bear Market
A bull market can be broadly defined as a continuous period where prices rise — generally for months, quarters or years. Like the stock market, other asset classes can also have bull markets, such as commodities, real estate, or foreign currencies. Investing can be risky even for the most seasoned of investors during bear market periods. A bear market can be defined as a period in which investor confidence is extremely low along with falling stock prices.
A 20% rise in stock prices, following a previous 20% decline and then is followed by another 20% decline, is one commonly accepted definition of a bull market for stocks. Accompanying a bull market are several things, to mention a few, bull markets generally happen during the time periods when the economy is strengthening or strong. In all likelihood, there will be strong GDP growth, and companies’ financial performance will be on the rise along with other better economic data.
Investor confidence remains another strong indicator of a bull market. There is a strong overall demand for stocks, during a bull market, and the overall tone of market commentary bends to be positive. IPO activities in bull markets are higher as investors are ready to put in more money for better value.
During a bear market or a falling market, many investors opt-out to sell off their stocks for the fear of further losses, thus giving rise to a vicious cycle of negativity. Typically, over at least a two-month timeframe bear markets are marked by a 20% downturn or more in stock prices, although the financial implications of bear markets can vary.
Bear markets typically begin, following a period of more favorable stock prices when investor confidence begins to fade. In order to avoid losing money from the falling stock prices that investors anticipate, as they grow increasingly pessimistic about the state of the market, they tend to sell off their investments.
This behavior can ripple and cause widespread panic, which can make stock prices plunge in turn also impacting the dividend yields of the relative companies. Investors might try to capitalize on low stock prices by reinvesting in the stock market, at some point during a bear market. A bear market can eventually transition to a bull market, as trading activity rises and investor confidence starts to grow.
Head to Head Comparison between Bull Market vs Bear Market (Infographics)
Below are the top 7 differences between Bull Market vs Bear Market.
Key differences between Bull Market vs Bear Market
Let us discuss some of the major differences between Bull Market vs Bear Market:
- Bull Market is considered when there is a rise in the total performance of the market. Bear Market is when the market undergoes a huge decline in market performance.
- In a Bull market, the investors are essentially optimistic; in bear markets, the investors are typically pessimistic.
- Investors tend to take long positions in the bull market i.e. they buy shares so as to book profits if the prices go up further. While in the bear market, the investors take a short position, i.e. they sell the stocks so that they can make a profit when prices go down further.
- As the market continues to rise, it is a period of high stock prices when it is a bull market. As the markets continue to fall the prices of stocks continue to fall and it is a period of lows.
- As the market goes up, the investor’s response toward the bulls market becomes positive, and more investors are attracted to the market. On the other hand, due to the continuous fall, the response of investors is negative, and investors tend to pull out of the market.
- There are strong market indicators when we talk about bull markets. One can find weak market indicators in a bear market.
Comparison Table of Bull Market vs Bear Market
Let’s look at the top comparison between Bull Market and Bear Market below.
|Basis of Comparison||Bull Market||Bear Market|
|Meaning||Bull Market is the period when the prices start to rise||Bear Market is the period when prices start to fall considerably|
|Outlook||Bull market the investors are essentially optimistic||In bear markets, the investors are typically pessimistic|
|Position||Investors tend to take long positions||Investors tend to take short positions|
|Prices of Stock||As the stock prices continue to rise it is a period of high||As the prices of stocks continue to fall it is a period of lows|
|Stock Trading||The trading activity in a bull market is high||While the trading activity in a bear market is low|
|Economy||Bull markets tend to occur in a growing economy||Bear markets tend to appear in a declining economy|
Bull Market vs Bear Market is both important on their own terms. And both Bull Market vs Bear Market help in determining the stock price movements and investor confidence. Both Bull Market vs Bear Market is used by investors to switch through various modes of buying and selling.
They are primarily different in terms of the nature of price movement. When the price movements are on the upside the markets are said to be in a bull market with strong economic conditions. When the movements are downwards the markets are said to be in a bear market with weaker economic data or financial performance.
In Bear Market, the trading activities lower down due to the weak investor confidence while in Bull Market the trading activities increase substantially as the investor’s confidence rise and they are attracted to the market.
The most simplistic understanding of these differences is with their names when they charge, bulls tending to raise their horns while attacking and bears tend to attack downwards with their paws i.e. swiping down.
So the question remains can an investor use both Bull Market vs Bear Market to his/her advantage? The answer is yes; both Bull Market vs Bear Market have been discussed with their respective meanings and usage along with the difference between Bull Market and Bear Market in the article.
This is a guide to Bull Market vs Bear Market. Here we discuss the key differences with infographics and comparison tables. You may also have a look at the following articles –