What’s the difference between a bull market and a bear market? Read on and we’ll explain it.
What’s a bull market?
What does a bull do? It charges ahead, confident that it’ll make contact with its target. And it’s that attitude that encapsulates the idea of a bull market.
Strictly speaking, a bull market is when the price of stocks or other securities on an index rise at least 20% from a previous drop of 20%.
Bull markets are also characterized as a period of time during which stocks are rising. They usually indicate that the economy is strong, and that investors are confident. When investors are confident, the demand for securities is up, and as a result, major markets trend upward.
We’ve been in a bull market since the economy bottomed-out during the financial crisis in 2009—one of the longest in American history.
What’s a bear market?
A bear market is the opposite of a bull market—it’s characterized as a period during which stocks are falling.
Technically, a bear market is defined as a period when prices on an index fall 20% or more from a previous high, perhaps after a bull market.
During a bear market, investors are generally pessimistic—they don’t feel confident about the economy, and may be looking to sell their investments. The lack of demand leads to market sell-offs, with markets trending down.
When market prices become increasingly volatile (as they have over most of 2018), you may start to think that the bull market has transformed into a bear market. But it’s more likely we’re experiencing a smaller drop called a market correction, rather than a bear market.
Bear markets vs. market corrections
Corrections may end up being singular, one-off occurrences, but they can still rattle even the most confident investor. But corrections don’t necessarily mean we’re experiencing or leading up to, bear markets.
Market corrections and bear markets are all a part of market cycles, however, so keep that in mind the next time the markets drop, and you feel the urge to panic.
Bulls vs. bears: A history lesson
There’s a large, famous bronze statue of a bull in New York City, near the New York Stock Exchange. The Charging Bull, as it’s been called, was originally installed in 1989 as a piece of guerrilla art—it wasn’t officially sanctioned, but the statue’s popularity has earned it a permanent place in lower Manhattan.
Why a bull? The artist, Arturo Di Modica, said it was a symbol of the “strength and power of the American people.” And it’s that same strength and power that inspired the two common financial terms: “Bull markets” and “bear markets.”