What are Bull and Bear markets?
The terminology used in financial markets is often based on English expressions that can confuse new investors. We explain the meaning of two words widely used in the financial world to mark the trend of the markets.
Although financial markets can experience high volatility, they also have continuous periods of sharp declines or generalised rises. The terms Bull/Bullish market and Bear/Bear/Bearish market describe market trends, or market sectors, upwards or downwards, respectively. The exact etymology of the expressions is unknown, but a bearish trend is popularly associated with an upright bear that harrumphs downwards to attack and an uptrend with a bull that charges upwards with its horns.
We speak of a bull market when asset prices are rising across the board or are expected to do so in the near future. In other words, a bullish market means that a market is in an uptrend, or that many investors have bought positions because they expect their asset prices to rise soon.
It is a trend marked by investor confidence and optimism, due to political stability and economic recovery after a crisis. Bull markets tend to be more frequent and last longer than bear markets. They also have higher winning percentages than the losses that accompany bear markets.
The term Bear market is the opposite of Bull market because it refers to a market with a downward trend. In this context, stocks as a whole lose more than 20% of their stock market value over a prolonged period, usually more than two months, from their most recent peak price, and expectations for the future are also negative. This happens because investors sell more assets than they buy, thereby reducing the capitalisation of companies in the stock market.
In this case, an economic crisis, a geopolitical conflict, the collapse of a financial bubble or government instability characterise investors’ short positions and a downward perception of the future market. At this juncture, investments have to be made with great caution or seek yields in safe-haven assets such as gold, otherwise, losses are likely to be incurred.
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