What’s the difference between a bull and a bear market?
The share market is often described as being in either a bull market or a bear market. But what do these terms actually mean? Here’s a summary of the bulls and the bears and what they mean for investors.
What is a bull market?
A bull market means the share market is rising and investor sentiment is confident, further encouraging other investors to buy. Generally when the sharemarket is ‘bullish’, the economy is strong and unemployment is low.
What’s the technical definition of a bull market?
As a rule of thumb, a market is generally defined as being in a bull market when the value of the market has risen by 20% from the 52 week high.
What is a bear market?
Essentially a bear market is the opposite of a bull market. That means if the market falls by 20% or more from the 52 week high, it has become a bear market. A bear market is generally marked by investor pessimism which can cause prices to continue falling, adding to further negative sentiment.
What is a stock market correction?
Sometimes a steep fall in market prices can be a market correction rather than a bear market. Generally speaking, a fall of 10-20% is considered a market correction, with a fall beneath 20% considered a bear market.
However, whereas a bear market is usually a sign of negative investor sentiment, a market correction is often a temporary price reversal before the market continues moving upwards.
Bulls and bears
Investors are often categorised as bulls and bears. A “bull” by definition is an investor who buys shares because they believe the market is going to rise; whereas a “bear” will sell shares as they believe the market is going to turn negative.
Similarly, when the market is described as “bullish” it means there are more bulls in the market than bears at that time; whereas the opposite is the case when the market is described as “bearish”.
Things you should know
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