The Bull And Bear In The Stock Market

There are only two ways that generally happen in a stock market – being in a bull market or in a bear market. This is the classic economic tug of war that makes for interesting times and conditions in stock markets anywhere else in the world.

A bear market, as everyone knows, is that general and continuous downward movement of the stock market. On the other end, a bull market indicates the constant upward movement of the stock market.

When a particular stock seems to increase in value, it is described as bullish. A stock that seems to decrease its value is describes as bearish.

Bear and bull indicators

Short term market fluctuations, however, are not indicative of bull or bear markets. A bear market is when the price of key stocks fell by 20% or more for at least two months.

Prices, of course, sometimes temporarily increase within a bear market. Bull markets, on the other hand, indicate a rise in the prices of key stocks over a certain period of time.

Economic indicators

Usually, the state of the country’s economy is reflected in the conditions within the stock market. With an economy with reasonable rates and low unemployment, the condition is regarded bullish.

During a country’s economic slowdown, bear markets occur in the stock market. Investors lose their confidence and companies start laying off its workers.

An exaggerated bear market usually leads to an economic crash brought on by panic selling. An exaggerated bull market usually leads to a market bubble brought about by investor over-enthusiasm.

Bull markets

As expected, a bullish market generates a big number of investors who want to buy stocks. At times like this, the economy is usually doing very well.

It is not surprising that many people would want to buy stocks because they have the extra money. This, however, triggers an increase in stock prices because there will be a shortage in the supply and the demand for them is great.

Making money during bull markets is easier. All dips are temporary, and are corrected in time. Because the upward swing of prices cannot go on forever, the investors need to unload their stocks when the market reaches its peak.

Bear markets

During bear markets, a lot of investors typically unload their stocks and stash their money is fixed-run investments (like bonds). In these times, supply tends to exceed demand as money is withdrawn from the stock market.

On the bright side, bear markets are the most opportune times of picking up stocks at bargain prices. Usually, the greatest chance of making profits is at the end of a bear market. Since prices usually fall before they recover, investors prepare themselves for some short-term losses.

Strategies

During bear markets, investors usually resort to other investment strategies. One is short-selling. This involves the selling of stocks that investors do not own in the anticipation of further decreases in price.

This gives the investors a chance to buy the stocks for a lower price than their previous prices. Fixed-return investments are also used by investors to generate income.

Finally, they buy defensive stocks (including government-owned utilities) because of their relative safety to price downward roll in bear times at the stock market.