MARKET OVERVIEW: BULLS AND BEARS

BULL MARKET:

A bull market is a condition in the financial markets where the prices are rising or expected to rise. In stock markets when the value of the stocks tend to increase resulting in a profit gain by the shareholders, such a situation is referred to as the bull market.

Bull markets are characterized by optimism, investors confidence and expectations that the value of shares tends to increase over an extended period of time. Not all minor increases in values of shares can be determined as a bull market, however when the prices of shares rises by 20% such a condition is likely to occur.

Bull markets generally occur when the economy is strengthening or is already strong which is determined by the rise in GDP(gross-domestic-product). A lower unemployment rate can coincide with a rise in corporate profits. Furthermore investors' confidence is also an important factor as when investors believe that share prices might rise for an extended period of time they are more likely to invest in shares.

BEAR MARKET:

A bear market is a condition when a market such as the stock market experiences a decline in the prices of shares. It is generally described as a condition in which the prices of the securities fall by 20%, however a decline in overall market or index like S&P 500 by 20% is also a sign of a bear market.

Few common causes of a bear market could be a slowing economy and falling GDP due to pandemic, wars, geopolitical crisis etc. When there is high unemployment rate, lower disposable income, weak productivity and drop in business profits, the economy tends to decline. This can be most dangerous to invest in as many equities lose values and prices become volatile. Many investors withdraw their money storing liquid cash during this period until the trend reverses further lowering prices.

Bear markets can be cyclic or secular, where a secular bear market could last for longer periods such as 10 to 20 years; on the other hand, a cyclic bear market lasts for a few weeks or months.

EXAMPLES OF BULL AND BEAR MARKETS:

The U.S major market indexes were close to bear market territory on December 24, 2018, falling shy of a 20% drawdown.

The most prolific bull market in modern American history began at the end of the stagflation era in 1982 and lasted until 2000. During this secular bull market, Dow Jones Industrial Average(DGIA) averaged 16.8% annual returns.

To conclude, the bull market is a situation where the share prices rise and the shareholders gain profits by selling them when the prices reach their peak value. In contrast, a bear market is a reverse situation of a bull market where the shareholders experience loss as their share value declines and in such a condition the sooner they sell the shares the lower the loss.