They are both market types that are very common in the financial markets during an economic cycle. A bull market happens when the prices of financial assets increase over a sustained period of time. Conversely, a bear market happens when asset prices decrease over a sustained period of time. A bull market occurs when the GDP of a country is rising and the economy is very smooth. In this scenario, the prices of securities rise continuously due to improved internal circumstances of the sector. In bull markets, the investors have positive expectations of investments made and are confident enough of the state of the economy.

If the S&P 500 index actually existed on June 1st, 1932, it would have been at 4.40 points. At its all-time high less than 100 years later, it was at almost 3,400 points in February 2020. To give you a better idea Promissory Note of how bear markets and bull markets compare historically, look at this data. When trading in either market direction, it is crucial to be aware of both bullish and bearish continuation and reversal patterns.

Bears are tall and attack from their hind legs and so usually attack downwards. This is characterized by the market not performing well, a high unemployment rate, and the value of stocks decreasing. To have a bearish attitude on something is to be pessimistic about its future and cautious when assessing Currency Risk the risk factors. In bulls market, the stock prices are high, which is just opposite in the case of bears market. While it’s important to know the difference between a bear market and a bull market, it’s equally as important to know that they shouldn’t determine your whole investing strategy.

difference between bull and bear market

Share prices are dropping to the point where seasoned investors believe that this trend will continue, at least for the foreseeable future. A bull market is a period of time in financial markets when the price of an asset or security rises continuously. The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term. Small movements only represent a short-term trend or a market correction.

Why Is It Called A “bull” Market When Prices Go Up?

Discover what bullish investors look for in stocks and other assets. Whether you are new to an investing or looking to learn more, below are some characteristics of bullish vs. bearish markets and how you can make money in either market condition. Though nearly a decade has passed, the housing market crash of 2008 is still a fresh wound for many people. In its wake, millions of workers lost their jobs, homeowners lost their houses, and consumer spending fell by 8%. Though we’re in a bull market now, we’re still feeling the effects of the crash and its subsequent bear market today. No, we’re not in a bull market just because the pundits on TV say we are.

  • For example, an increase in demand for foreign products results in more imports, resulting in foreign currency investing, resulting in domestic currency depreciation.
  • The S&P 500 fell nearly 30% in less than a year as the market cooled down — Investors simply thought the market had grown too fast over the previous decade.
  • We’re really excited about buying when there’s a lot of fear and we’re really excited about selling when there’s a lot of greed in the stock market.
  • Generally, there’s stagnation or a downward trend, people’s confidence in the economy is low, and more people are selling stock than buying.

Occurs when the size of an economy remains the same or grows very slowly for a period, usually accompanied by other economic conditions such as high unemployment. This applies to cryptocurrency markets as well as traditional markets. In cryptocurrency, however, it is more common to see stronger and more consistent bull-run crypto phases. One popular belief is that the terms are based on the animals’ styles of attack.

Bull Market Vs Bear Market

Stacy Rapacon is a freelance writer, specialized in personal-finance topics including investing, retirement, and smart spending. Her work can also be found on Kiplinger.com, U.S. News and World Report, CNBC, and other publications. The good news is that each bear has typically lasted for just a little over a year, and stocks have always recovered, historically, and gone on to make significant gains. If you want to learn the strategies to successfully invest regardless of how the market is performing, I’d like to invite you to join my Live 2-Day Virtual Investing Workshop. Where I’ll tune in with you in an interactive setting to help you make smart investing decisions whether the market is thriving or in the middle of a recession.

difference between bull and bear market

A term that denotes a bull market lasting many years – averaged 16.8% annual returns. From 2000 to 2009, the market struggled and delivered average annual returns of -6.2%. Bear markets can sometimes lead to a recession if the economy is affected enough. The South Sea Bubble gets its name from the South Sea Company, founded in 1711 to trade with Spain’s colonies in the New World.

What Causes Bull And Bear Markets?

Requires both an active Acorns Checking account and an Acorns Investment account in good standing.Real-Time Round-Ups® are accrued instantly for investment during the next trading window. The ETFs comprising the portfolios charge fees and expenses that will reduce a client’s return. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. Investment policies, management fees and other information can be found in the individual ETF’s prospectus. The key thing to understand in Rule #1 Investing is that we move almost exactly the opposite of the way most people are moving in the marketplace. How long bear markets will last varies wildly depending on the specific situation.

difference between bull and bear market

One common method for increasing holdings suggests that an investor will buy an additional fixed quantity of shares for every increase in stock price of a pre-set amount. However, not all long movements in the market can be characterized as bull or bear. Sometimes a market may go through a period of stagnation as it tries to find direction. In this case, a series of upward and downward movements would actually cancel-out gains and losses resulting in a flat market trend. There have been a few bear markets in the U.S. history, but one of the longest bear markets ended way back in 1942 and lasted 61 months.

Prevailing Interest Rates

Another factor that determines whether the market is bull or bear is how the economy changes from time to time. In a bull market, corporate earnings increase, and the economy grows as consumers tend to spend more due to the wealth effect. The ideal thing for an investor to do during the bull market is to buy stocks early in the trend, watch them rise in value, and sell them when they reach their peak.

Impact On Economy

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital.

How Should You Invest In A Bull Vs Bear Market?

When a stock price falls so rapidly, many investors will short the stock since they predict the price will keep falling. During a bull market, a country’s GDP is high and spending is high, which means the economy is growing. As an investor, you should always look at the wider market conditions before making any decisions.

How Long Do Bull Markets Last?

When you’re looking at historical charts and returns, this seems easy. Unfortunately, figuring out when to buy and sell during these tumultuous times is much harder to predict. First, you’d have to invest difference between bull and bear market at the absolute low of a particular investment. Then, you’d have to sell at the very peak of that investment’s value. After that, you’d have to predict when the investment hits bottom and buy it back.

A bullish market has higher liquidity, wherein stocks can trade at lower transaction costs due to investors’ high confidence in quick and steady returns. On the other hand, a bearish market has lower liquidity due to a lack of confidence in general market conditions. In general, things such as wars, political crises, pandemics and slow economies may trigger the start of a bear market. In crypto, however, it’s much harder to predict when a bear market will start based on previous trends. Whereas the stock market already has decades of data for investors and analysts to refer to, the crypto market is relatively young.

Author: Matt Egan