Stock market trends are generally described using one of two colloquial terms: the Bull Market and the Bear Market. The market shifts back and forth between these two market conditions.
A bear market is a phrase that represents the general downturn of the market, or lowering stock prices. On the other hand, the bull market is just the opposite – the positive growth of the market’s stock prices.
Individual stocks with increasing value are known as bullish stocks, while those experiencing a decrease are called bearish stocks.
Indicators of Bear and Bull Stocks
You cannot accurately classify the stock market trend simply on the basis of short-term data. Determinations of bull or bear markets rely on the overall trend of stock prices over months of time.
For example, there will inevitably be temporary ups in a bear market and temporary downs in a bull market. So the stock market fluctuates daily, but it is more important to assess its longer-term overall trend.
Economic Indicators of the Market
The stock market tends to mirror the overall state of the economy, having a number of similarities with the overall economy.
A bull or bullish economy tends to have moderate interest rates and a low unemployment rate. Confidence in the stock market is high, and the performance of stocks on average either lean toward or are strongly positive.
In times where the economy is undergoing an economic depression, we see high rates of unemployment and a number of poor economic indicators. In such an economy, investors tend to lose confidence in the market, and may sell their stocks in large amounts.
Extreme bear or bull markets are not good for the stock market, with either extreme generating its own set of concerns. A high bear market can exacerbate economic problems as investors rush to dump their stocks quickly to minimize their losses.
Strong bull markets lead to a “bubble” of stock wealth built due to over-confidence of investors. Eventually this bubble bursts, causing major problems to the performance of stocks. When such bubbles burst, companies die.
The Bull Market
Bull markets draw investors who to want to purchase stocks. The performance of the economy and the stock market tends to be shifting positively, making it a good time to invest for most investors – if they invest early enough.
Investors tend to have more money during the economic conditions of a bull market. However, the increased demand and shortage of supply for stocks can cause the stock prices to become inflated, or over-valued.
It can be easier to earn a profit in a bull market because the trend of the economy is shifting upward and everyone knows. But eventually the economy and the stock market experience another downturn in its cycle of ups and downs.
For investors, the profitability key comes in accurately determining the transition point where the market begins to fall and then take at least some of your profits by selling a portion of your stocks before being negatively impacted by the downturn.
The Bear Market
The bear market can be extremely difficult to navigate, especially for a novice investor. Investors here use a number of special investment strategies to try to make the best of a bad situation.
One of these techniques is called “short selling,” which is the selling of stocks as you anticipate its price will continue to decline. Then the investor can buy the stocks back for an even lower price.
Other investors decide to focus only on investing in more stable stocks such as government owned utility companies because they are less risky.