Compare and contrast a bear market and a bull market.
A bull market and a bear market are two kinds of events that can occur in the stock market. Both will impact investors.
During a bull market, the stock market will rise over a period of time. This usually indicates that investors feel good about the direction our economy is heading.
In a bear market, stock prices are falling over a period of time. This usually indicates that people are concerned about the direction our economy is going.
In both markets, people can make or lose money. If people panic during a bear market, they may sell their stocks too soon and lose money on their investment. If people jump into the stock market during a bull market, they may pay too much for the stock and end up selling it for a loss if the price of the stock drops.
During a bear market, a person might be able to get a stock at a low price. If they buy it at a low price and sell it during a bull market, they could make money on the stock. Bullish and bearish are two terms used to describe the attitudes of investors regarding the stock market.
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During a Bull market:
- Stock prices rise in the long term
- Inflation is stable, controlled
- Interest rates decline
- Bond prices rise in inverse relationship to interest rates
- Economic indicators are strong and positive
During a Bear market:
- Stock prices fall in the long term
- Inflation rises quickly
- Interest rates rise
- Bond prices decline in inverse relationship to interest rates
- Economic indicators are weak and negative with recession and high unemployment
During both markets:
- Investors can still make money by wisely investing, e.g., in bonds during bear and stocks during bull markets.
- There are investments that defy the general trend (i.e., some stocks rise during a bear market and some fall during a bull market because stock price is still related to company performance within the market).
Bull and Bear Markets