Review of a Bull Market and a Bear Market

Aug 26, 2022 By Susan Kelly

A bull market occurs when prices in a market are rising or are expected to rise. The term "bull market" is most often associated with the stock exchange, but it can refer to the buying and selling any asset.

The phrase "bull market" is often reserved for extended periods in which most asset prices increase, given that security prices constantly shift during the trade. The duration of a bull market is not limited to a single month.

In a bull market, investors have a positive outlook and anticipate improving the market's performance. Trying to predict when market trends might change is difficult. For this reason, as well as the impact of speculation and psychological variables, the markets can be hard to predict.

No single indicator can be relied on to predict a bull market reliably. Generally, a bull market exists when stock prices have increased by 20% or more from their recent lows.

Market Characteristics

Bull markets generally occur when the economy is growing or doing well. Strong GDP and declining unemployment rates tend to coincide with a rise in business profits. Bull markets provide people with a reason to feel good about their investments. The market and investor sentiment will be optimistic, indicating robust stock demand. Additionally, IPOs tend to increase in number and scale during market expansions.

Some of these factors can be measured more quickly than others, so keep that in mind. While firm profits and unemployment rates can be quantified, the tone of the market commentary is more subjective and, thus, more challenging to analyse. At times when securities are scarce, demand will be high. Investors looking to buy assets will have more difficulty finding willing vendors. Investors are more inclined to risk their money in the (stock) market when they have a positive outlook on its future performance.

Market Optimists vs Pessimists

The opposite of a bull market is a bear market, where prices fall. The aggressive hunting styles of bulls and bears are sometimes cited as the inspiration for adopting these terms to describe market conditions. The bull's horns and the bear slice downward, but the bear uses his paws to advance. These moves represent the ups and downs of the market. An uptrend characterises a bull market. When the overall tendency in the market is to fall, this is known as a bear market.

The stock market's ups and downs often reflect the four economic cycle stages: growth, peak, contraction, and trough. When a bull market starts, it's usually a good sign that economic development is just around the corner. Since public attitudes about future economic conditions drive markets, they tend to rise ahead of more extensive financial benchmarks like GDP growth. Bear markets, like economic contractions, generally start in advance. Looking at historical recessions in the US, it is evident that a falling stock market begins months before GDP drops.

Making the Most of a Rising Market

Investors can benefit from a bull market by buying low and selling high. While it may be challenging to determine when a loss begins and ends, it will be relatively mild and temporary in most circumstances. Following is a discussion of some of the more typical strategies investors employ during bull markets. However, these methods are not risk-free, as assessing the current market climate is more complicated than ever.

Buy-and-Hold Investment Method

Increased purchase and hold, a more sophisticated form of the buy-and-hold strategy, is linked to greater degrees of risk. The theory behind the increasing purchase and hold approach is that investors will keep or add to their holdings if the investment price continues to climb. If the stock price rises over a specific point, the investor will typically acquire more shares.

Adjustments and Improvements

A security's price may defy the prevailing trend for a short period. Even during a bull market, it is unlikely that stock values will continue to rise steadily. While it's more likely that prices will continue to grow over the long term, they may dip modestly for brief periods.

Some investors prefer to wait for the bull market to stabilise before making any acquisitions, while others like to buy on market retracements. The idea behind this strategy is that the security's price will quickly rebound if the current bull market trend continues, allowing the investor to buy at a discount.

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