It’s a bit like a construction site
It’s just gonna rise. Maybe not as fast as one hopes, with some issues along the way - but the building will go up. Similarly, in a bull market, prices are rising or expected to rise - one can speculate until when, but no one really knows.
What’s a bull market?
The economy is strong. GDP is rising, unemployment is in decline, and stock prices clearly reflect that. That’s not just some fake-sounding news, but it’s what happens when the prices of securities rise continuously over an extended period of time. These times on the stock exchange are defined as “bull market”, and they can last a few months or even a few years. This condition is defined when stock prices decline twice by 20%, to then rise by 20%. In this state of affairs, investors are feeling optimistic and probably singing the Happy Song. And they are so happy because they think this will last, and they feel something called "investors' confidence". These high expectations become reality as they actually influence stock prices, which keep on rising. Until they obviously, eventually, stop.
What’s a bear market?
Bluntly, the opposite of a bull market. And not just because bulls are stronger than bears. That actually really depends, and if you are into controversial history you might want to read more about it here. A bear market condition are the sad times, where pessimism prevails. Prices fall, and selling is highly encouraged. In this case, prices fall 20% or more for an extended period of time. If the fall lasts a few weeks to a few years, it is called a cyclical bear market. If it lasts between 10-20 years (yes, you read that right) it’s called a secular bear market. These conditions are usually brought upon a general slug in the economy, which can be characterized by high unemployment rates, low income, and just overall low productivity.
It’s all a cycle…
The way these kinds of markets are described have to do with the four-stage economic cycle. The four happen in chronological order, and start with the expansion of an economy, which is when it starts growing. Then there’s the peak, which is when the market reaches its summit (who said you needed to go to mount Everest?), followed by a natural contraction of the market. In this stage, the growth starts to shrink, to then go into a through - a bottoming stage before another rise. These are all stages that just need to happen within a market, the only difference being how long each lasts and how much it grows and shrinks. So a bull market and bear market are just ways to describe this natural life cycle of the stock market. Because of this, both are often recognizable only once they are over.
Why will your future self thank you?
Firstly, people tweet about this. And by people we mean the president of the United States, so it’s good to know what he (and maybe in the future a she) are talking about. But really, a bull vs. a bear market are indicators of how a country is doing, and of how one should be mindful of their investments.
- Why is it called a bull market? A bull attacks its opponents with its horns up.
2. Why is it called a bear market? A bear attacks its opponents wiping its paws down (although we’d rather not be attacked at all).
3. Pull & Bear is a popular fashion retailer for young adults. Not related, but a great way to remember bull & bear markets if you are into mnemonics.