Bullish vs Bearish – Definition & Difference
A market that is rising and in which the economy is healthy is said to be in a bull market, whereas a market that is falling and in which the majority of stocks are losing value is said to be in a bear market.
A bullish market trend is characterised by rising stock prices for all types of market securities, particularly equities instruments. To qualify as a bull market, growth in trade volume and purchases of at least 20% must be noted by several stock exchanges.
At this time, investors have high hopes for the stock market’s performance and are eager to invest their funds in this area. An increase in cash flow into this industry due to rising consumer confidence enables businesses to grow annual turnover, which generates bigger profits that are distributed to shareholders.
Characteristics of a bull market
Several things frequently occur simultaneously with a bull market. To begin with, they frequently take place while the economy is robust or growing. Gross domestic product (GDP) growth, declining unemployment, and rising corporate profitability are frequently indicators of bull markets.
Rising investor confidence is another excellent non-numerical indication of a bull market. During these moments, there is a significant increase in the overall demand for stocks, and market commentary generally has a positive “tone”. Additionally, we frequently observe large levels of initial public offering, or IPO, activity in bull markets because companies may obtain higher prices for their equity.
How to invest in a bull market?
To build long-term wealth, you should keep a long-term perspective despite how the market is performing. While buying stocks at a discount can be a smart move, trying to time the market is foolish. Every market has great long-term enterprises to offer.
A bull market’s primary features are as follows
- An improvement in investor confidence : Investors continue to buy stocks because they believe that stock prices will rise further. Due to supply and demand, this drives up stock prices even further.
- Businesses increased their future bets : Businesses concentrate on expansion and make investments in themselves as a result of customer purchase.
- Low unemployment rates : As businesses grow, they hire more people, which lowers the unemployment rate. As businesses compete for workers, average earnings increase. Because they have a better possibility of finding a job that pays them more than their current one, they are also more likely to hunt for employment.
- Spending money is simpler : Customers will have more money to spend if salaries rise. After all, it seems like getting more will be rather simple.
- Therefore, there is a risk of excessive inflation : As a result of all that extra money, products may become more expensive.
An extended drop in market is what is known as a bear market; typically, a bear market is when a broad market index declines by 20% or more from its most recent high.
Bear markets, however, can refer to any stock index or a specific stock that has declined by 20% or more from recent highs.
Causes of bear market
A bear market might have many different potential causes, but one of them is frequently investor nervousness or uncertainty. Global COVID-19 pandemic was the primary cause of the most recent bear market in 2020, but other causes in the past have included extensive investor speculation, reckless lending, changes in the price of oil, high levels of leverage in investments, and more.
What to do in a bear market ?
Revaluating your risk tolerance is also a good idea during bear markets. Some investors hold off on investing until the bear market has passed. Investors frequently realise they missed the bus when the market fully recovers. The longer you wait, the deeper you fall behind. So enter the market gradually, but make sure you have enough cash on hand.
A financial plan must be in place in order to make wise decisions. You are more likely to act hastily during market turbulence if you don’t have a plan.
- Purchase stocks – During a bear market, all company stock prices decline. The time is regarded as ideal for stock purchases and investments. However, you should invest in stocks of reputable organisations whose value will increase. Rebalance your portfolio and start concentrating on value stocks rather than growth ones.
- Hold on – No matter how far a company’s stock price declines, if you believe in it, hold on. If you require cash, you might think about selling. You should also revaluate your portfolio to see if exchanging the company’s shares is wise. It is preferable not to jeopardise your objectives by selling long-term investments.
- Dividend stocks buy – The best time to invest in firms with a history of large dividend payments is during bear markets. Dividends are a reliable source of ongoing income. Additionally, it will let you reinvest the dividend income you receive. Do not, however, neglect high growth businesses by focusing primarily on dividend stocks. The best time to purchase high-growth shares that you have been eyeing is when prices fall.
- Diversify your holdings – While bear markets are the ideal times to purchase stocks, they can also be a good time to expand your holdings by adding bonds to your portfolio. Bonds have lower volatility and provide consistent cash flow that can be reinvested.
What sets bullish and bearish trends apart?
The main difference between bullish and bearish is an outlook or conviction towards the stock market. A optimistic person acts on the assumption that prices will increase, whereas pessimistic people act on the assumption that prices would decrease. Bullish and bearish phrases are frequently used to describe patterns and trends in significant stock market indexes.
Because both bulls and bears are big, powerful, and known for being territorial, it can be simple to get them mixed up with your financial market animals. On the other hand, in a bull market, stock market values increase by at least 20% from a recent low, while in a bear market, average stock values decline by at least 20% from a recent top.
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Disclaimer : You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this website without undertaking independent due diligence and consultation with a professional broker or financial advisory.