If you’re invested in the Stock Market, learning about it, or are around anyone talking about it, you’ll probably hear the terms “Bear Market” and “Bull Market.” No, it’s not a “bare” market nor is the “market a bunch of bull.” These terms refer to the state of the market as it relates to the direction of the Stock Market in an upward or downward trend. Let’s talk about each…
Bull Market
A Bull Market is a market where stock prices are on the rise and the overall economy is pretty solid. Typically you will see sustained increases in stock prices and there will be a strong demand but a weak supply for different types of stocks. In a Bull Market, many investors wish to buy and less are willing to sell. People tend to feel confident in a Bull Market and want to buy more stocks. People are mostly “bullish” in this type of market.
Bear Market
A Bear Market is a market where stock prices are declining in value and the economy seems to be more in a downward trend. A decline is typically a 20% or more drop in prices from recent highs. In this scenario, more investors are willing to sell and less are willing to buy, thus empowering this downward cycle to continue. The demand for stocks and securities is significantly lower than the supply, driving the stock prices down. As the market becomes more “bearish,” the economy will tend to slow down and people start to lose their jobs, increasing the unemployment rate.
Investor Response to Market Conditions
Many people opt to sell as the market becomes more “bearish” and buy when the market becomes more “bullish.” Everyone wants to see what they own have a higher value, so a “bullish” market seems like the best to buy into. Whereas, if the market is “bearish,” people see the stock portfolio losing value and tend to sell as soon as they can so they don’t lose too much money.
The reality is that, despite what the majority are doing (selling in “bearish” market and buying in a “bullish” market), many of the best investors do the opposite. Some of the most successful investors like to buy stock when the market is “bearish” because they see that they are buying these stocks on sale. They believe the “bearish” market is temporary, and if they feel like the company whose stock is on sale is a solid company, they buy the stock at a cheaper price. Then when the stock rises, they have more shares of the stock and watch their money grow.
The Takeaway
Understanding when the market is “bearish” or “bullish” is very important when it comes to the security of your stock portfolio. You need to know when the right time to buy and the right time to sell is. You also need to understand that many, many things affect the Stock Market and its current state. And the Stock Market can have a huge impact on the economy.
People react in different ways depending on the state of the Stock Market. People tend to feel more confident in a Bull Market and less confident in a Bear Market. This level of confidence strongly impacts people’s decisions of when to buy and sell stock. The right time to buy and sell is affected by many things, including your plan for retirement and the money you have in the Stock Market. One thing’s for sure…understanding a Bull Market and a Bear Market are critical if you invest any money in the Stock Market and isn’t a bad thing to understand when it comes to our economy.
Please understand that I am NOT a financial advisor and that this information is my interpretation based upon research and should be considered as entertainment only. If you wish to invest your money or have further questions, seek out a certified financial advisor to help you out.