Bull Market vs. Bear Market? What You Need to Know
The stock market can seem like a game of chance sometimes — you might wake up one day to find that your investments have grown by 5% overnight, then six months down the line, there was an unexpected crash, and you’ve lost all your gains
The two names might sound similar, but trust me, the two phenomena are worlds apart. Let’s take a look at what bear and bull markets are, what to expect from them, and how to react to them for maximum profit.
If I had to sum up the sentiment of a bull market in five words, it would be these: let the good times roll. During a bull market, everything looks peachy — the economy is doing great, stock prices are high, and unemployment is low. What more could you ask for?
What Is a Bull Market?
As they say, what goes up must come down — and that downward movement is encapsulated in bear markets. The mechanisms here are very similar to those found in a bull market, except for everything happens in reverse: prices decline, so more investors sell, resulting in prices to continually decline. As a result, you can expect slow growth and high unemployment in addition to declining prices.
What Is a Bear Market?
Bull markets and bear markets shouldn’t be looked at in isolation — they both form part of the economic cycle. During the economy’s expansion, the bull market is in full swing; then, after it reaches its peak, it creeps into a bear market.
Prior to the COVID-19 pandemic, we were in the midst of the longest bull market in history, which lasted from March 2009 right to March 2020. Over this time, the S&P 500 grew by more than 400% — anybody who had the guts to invest back in 2009 could have made themselves very rich by now.
As for the declines, the best example is the Great Depression. Between 1928 to 1932, the Dow Jones Index fell by around 80%. It also decreased for four consecutive years, making it a more sustained decline than any other bear market.
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