In the world of investing, the terms “bull” and “bear” are often used to touch on the conditions of the market. These terms explain how stock markets are generally performing, whether they are rising or dropping in value. For an investor, the direction of the market is a massive force that has a large impact on the investor’s portfolio. So, it’s crucial to know how each of these market conditions may impact someone’s investments. 

A bull market is a market that is increasing and where the conditions of the economy are beneficial in most aspects. A bear market is present in an economy that is retreating and where most stocks are diminishing in value. Because the markets are hugely influenced by investors’ mindsets, these terms also represent how investors perceive market trends.

A bull market is characterized by a supported increase in prices. Given that of equity markets, a bull market denotes an increase in the value of companies’ shares. In times such as these, investors tend to have faith that the uptrend will carry on over the long term. In this situation, the economy of the country is usually strong and employment levels are high. 

On the other hand, a bear market is diminishing. A market is generally not regarded as a true “bear” market unless it has dropped 20% or more from recent highs. In a bear market, share prices are constantly dropping. The outcome is a diminishing trend that investors assume will continue. This belief results in a downward spiral. During a bear market, the economy slows down and companies lay off workers which result in a significant rise in unemployment. 

The psychology and sentiment of investors affect whether the market will rise or fall. In a bull market, investors willingly take part in the hope of acquiring a profit. 

During the bear market, investors extract their money from equities and place them into fixed-income securities as they stand by for a favorable move in the stock market. In short, the decline in stock market prices shatters investor enthusiasm. As a result, investors keep their money out of the market, which, eventually, causes a general price decline as outflow rises.  

In a bull market, investors exploit the increasing prices by obtaining stocks early in the trend and then selling them when they have reached their peak. 

During the bull market, investors invest more confidently and actively with a higher possibility of making a profit. On the other hand, in a bear market, there is a higher chance of loss due to the prices continuously diminishing in value and the end is often not in sight. 

Both bear and bull markets will have a big influence on someone’s investments, so it’s a wise choice for an investor to lay back and take some time to determine the flow of the market when making an investment decision. Mostly, over the long term, the stock market has posted a beneficial return. 

Risk warning: Trading is risky. Information presented herein is not to be construed as a solicitation or an offer to buy or sell any Financial Instrument or to participate in any trading strategy.