Bull and Bear Markets

The terms “bull market” and “bear market” are often thrown around in the news to describe movements or trends in the stock market. However, those same news stories aren’t always clear about what those two terms mean.

Here’s what you need to know about bull and bear markets, what they mean, and how they differ from each other.

Bull market

Bull market is a term used to describe when the financial markets go up aggressively over a period of time – usually months or years. The term “bull market” is typically used in reference to the stock market, but it can also apply to markets for bonds, real estate, crypto assets, or other publicly traded products. There are a number of different measures used to define a bull market, but the common factor involves  stock or asset prices rising over an extended period. A bull market is the opposite of a bear market.

What triggers a bull market?

Some generally agreed upon triggers for a bull market in stocks are:

• A strong economy which results in high employment levels and expanding Gross Domestic Product (GDP)
• Positive outlook on future economic conditions. If investors are confident, they are likely to invest more which, in turn, can increase the demand (and price) of traded products (stocks, bonds, real estate, etc.)
• Growing corporate earnings

Bear market

“Bear market” is a term commonly used to describe a period of declining stock prices, usually marked by a decline of 20% over a sustained period of time (typically  2 months or more). A market in which stock prices decline consistently, along with a widespread negative outlook on the markets, growing unemployment, and weak economic conditions are typically signs of a bear market. A bear market is the opposite of a bull market.

What triggers a bear market?

The causes vary, but some of the potential triggers for a bear market in stocks are:

• Declining corporate earnings
• Weak or slowing economic conditions resulting in lower employment rates, personal income, and GDP
• The government can potentially cause a bear market by changing tax rates, or raising interest rates
• A negative outlook on future economic conditions may also signal an upcoming bear market. If investors aren’t confident, they might pull out of their investments, which can lead to prices declining due to a declining demand and increased supply