Bull Market and Bear Market are Terms Used to describe the Stock Market’s ups and downs. A bullish Market Represents rising stock prices, and Bearish Market Represents declining stock prices. Once You Understanding the Contrast Between Bull and Bear can help you Feel more confident as an investor.
What Is Bull Market ?
According to the Definition, A Bull Market is a financial market condition in which prices are increasing or are expected to rise. A Bull market takes Effect when stock prices have raised by at least 20% since the last market downturn.
The bull market Concept is mostly Used to refer to the stock market but can be applied to anything traded, like bonds, currencies, real estate & commodities.
At the time of a Bull Market, securities prices continue to rise. In this Phase of rising Equity Prices, the investor believes the uptrend will continue for a long Period.
Causes of a Bull Market-
1)Strength of an Economy–
A bull market is prevalent in countries with fundamentally sound policies, proper implementation regimes to ensure adequate production of goods and services, and suitable market conditions to facilitate sales.
2)Foundation of Large-Cap Companies-
The primary component in the major benchmark indices is Large-capital companies which serve as a crucial indicator of the stock market bull or bear. Unsystematic fluctuations affect small and mid-capital companies more, which can bear a false indicator regarding the overall market trend regarding growth. Bullish markets are mainly reflected through rising benchmark index points, as large-capital companies demonstrate significant advancement having long-term effects.
3)Business Cycle fluctuations-
When the productive capacity and growth rates rise substantially, as indicated by rising Gross Domestic Product rates and bullish market trends, the business cycle comprises an upward swing known as the boom period of an economy. The unemployment rates in a country are significantly low, with rising per capita income of individuals. With more money to spend, speculative demand increases, indicating a bullish market trend.
What Is Bear Market ?
A bear market is a situation when the stock market price declines over time. A bear market is defined by a Prolonged drop in investment prices when a broad market index falls by 20% or more from its high.
In other words, a trend of falling stock prices for an extended period is considered a bear market. Substantial deterioration of at least 20% or more has to be recorded for a market to be classified as bearish.
Causes of a Bear Market
1)Unexpected fluctuations-
Fluctuations can arise due to socio-economic turmoil in a country as well. As political decisions impact the performance of major companies operating in an economy, investments are likely to take a hit as well.
2)Global Mind Set–
With rising interdependence among the countries in the world, any fluctuation in the performance of a sizable major economy is bound to have repercussions in a domestic economy. A recent example can be cited in this respect when tensions between America and China, two of the biggest economies in the world, caused uncertainty among Indian investors as well, leading to a fall in the Sensex points.
As relations between the two global superpowers are likely to impact the Indian economy through fluctuating import and export revenues, the profitability of domestic industries is expected to vary accordingly.
3)World Recession-
The recession is essentially a period of economic decline. An economy is officially under recession if it experiences two consecutive quarters of declining GDP growth. In addition, a receding economy also experiences high unemployment rates and declining consumer demand.
Since companies tend to underperform during such conditions, their revenue stream and, subsequently, their profits will likely go down. This is likely to lead to investors looking to sell off all their investments and move towards safe-haven assets, thereby creating a bear market scenario.
4)Socio-political factors-
Socio-political factors are another major factor that can cause bear markets. Political uncertainty and turmoil, for instance, can completely wreck investor confidence. Such a scenario would ultimately lead to investors pulling out their investments from the country in question, bringing about a bear market.
Even a tiny change in the tax rates or other laws, political decisions, and the enactment of new rules that make it more challenging for businesses are a few of the other socio-political factors that can also lead to a bear market. Since these decisions impact the performance of companies operating in an economy, the stock prices will likely take a huge hit.
Types of a Bear Market
- Secular
- Cyclical
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