Bull market vs. bear market is a completion that often takes center stage in stock and asset trading. From traditional stocks to digital assets like crypto, bear and bull markets are two popular terms used to describe market conditions. These phrases describe the opposing forces that shape the direction of financial markets. Understanding the dynamics and characteristics of bull and bear markets is crucial for investors to make better financial decisions.
What is a Bull Market?
The formal definition of the Bull market is “when prices generally increase by at least 20% following the last market downturn”. Essentially, a bull market happens when the general prices of assets listed in a financial market increase significantly over a prolonged period of time. Although there is no standard criteria for bull market periods
Bull markets can be caused by different factors. They generally happen at times when other primary macroeconomic factors are also trending up. These factors include gross domestic profit, corporate earnings, as well as consumer spending.
How Long Does a Bull Market Last?
Bull markets generally span a few months to a couple of years but are usually longer than bear markets. Also, they tend to happen more frequently, as bull markets have occurred for 78% of the last 91 years.
The average bull market usually lasts for about 973 days, which is approximately 2.7 years. The longest bull market on record lasted from 2009 to 2020. It resulted in a whooping stock growth of over 400%.
Bull market situations can even last for decades, and a lot of successful investors have taken a risk very poorly by attempting to foretell the end of a bull market. During a bull market, stock investors are typically eager about a robust economy and tangible job growth.
What is a Bear Market?
A bear market happens when the general prices of assets listed in a financial market drop substantially over a prolonged period of time. The standard threshold for a bear market is a decrease of 20% or more from current highs, nonetheless, this term doesn’t have any ubiquitous definition.
A bearish market situation is often caused by significant macroeconomic and geopolitical changes. Also, they typically occur after bull markets, when the prices for assets are generally high relative to historical levels. Some significant bear markets that happened in the past were caused by factors like inflation, a persistent increase in interest rates, declining consumer spending, and even the Ukrainian war. Bear markets are generally marked by low investor enthusiasm and a dwindling economy.
How Long Does a Bear Market Last?
Judging by statistics, bear markets are usually shorter than bull markets. The average duration of a bear market is only 289 days or barely under 10 months.
Although some bear markets have lasted for a few years, others only lasted for some months. The longest bear market on record occurred from March 1937 up until April 1942 (The Great Depression). It lasted for about 61 months. Fortunately, in more recent decades, bear markets have typically gotten shorter in duration. For instance, in 1990, a bear market prevailed for just three months.
The most recent market to happen, which began in March 2020, was very short, ceasing in August when stocks shut at record highs. On the other hand, the last bear market (the Great Recession) didn’t see a notable recovery for almost four years.
You should note that even during bear markets, the stock market can experience big gains. For example, in the previous two decades, more than half of the S&P 500’s potent days occurred during bear markets.
Bull Market vs. Bear Market – What are the Similarities?
Here are two major similarities between both kinds of markets:
1. Both kinds of crypto market situations can be caused by economic or political factors. A bear market might be fueled by fears of an economic downturn or recession. A bull market can be fueled by a solid economy and job growth, which may help to facilitate an increase in the stock market.
2. In both types of markets, not all crypto asset prices shift in the general direction of the market. By nature, some assets are bound to move in the opposite direction of the general market. While the words “bull and bear market” may be sweeping generalities, separate assets may be influenced by factors which are not directly associated with the general movement of the markets.
Bull Market vs. Bear Market – What are the Differences?
A bull market is a kind of market situation where assets are on the rise and where the overall conditions of the economy are naturally favorable. On the other hand, a bear market occurs in an economy that is decreasing and where the prices and value of most stocks or assets are declining. Since financial markets are largely influenced by the attitudes of investors, these terms can also be used to denote how stock investors feel about the happenings in the market and the following economic trends.
A bull market is generally characterized by a persistent increase in prices. In cases of equity markets, a bull market implies an increase in the general prices of companies’ shares. In such situations, investors usually trust that the uptrend will persist over the long term. Generally, in this situation, the nation’s economy is strong and employment rates are high.
By disparity, a bear market is one that is characterized by a great decline. Generally, a market is not regarded as a real “bear” market unless it has plunged 20% or below from current highs. During a bear market situation, a country’s economy slows down and unemployment increases as organizations start laying off employees.
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What to Do in Each Market Situation
The best thing you can do in a bull market is to take good advantage of the rising prices by purchasing assets or stocks very early in the trend (if feasible) and then trading them off when they reach their peak.
During a bull market, any losses you experience should be little and temporary. Hence, you can generally boldly invest in more equity and have a higher probability of getting returns.
However, in a bear market, the likelihood of losses is higher because prices constantly lose value and the end is often not in view. Even if you choose to invest with the hopes of an upturn, you are still likely to take a substantial loss before any considerable turnaround occurs. Therefore, most of the profitability can be reaped in short selling or investing in much safer options, like fixed-income securities.
On one hand bull markets typically don’t put people through too much stress or panic, bear markets, however, encourage anxiety and uncertainty both in the market and the economy.
Ultimately, how you deal with a bear market is primarily dependent on your investment duration. A diversified portfolio specifically constructed for your financial plans can help to prepare you to boldly stay on course and make it through any type of market.
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