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Mar 28, 2022

Bull Market vs. Bear Market: What Does It Mean?

By Stash Team

Bulls and bears—we explain what it all means.

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You’ve probably heard of bull markets and bear markets and maybe even seen the famous Charging Bull statue near Wall Street in lower Manhattan. But what do these animal metaphors mean for you as an investor? Knowing the characteristics of a bull market, vs. a bear market, can help you build a long-term investment strategy that’s aligned with your risk profile. And knowing how to determine bull or bear market conditions may help you sort through pundits’ claims more easily.

Bull and bear markets: definitions + conversational use

  • Bull market meaning: A bull charges ahead, confident that it will make contact with its target, and that attitude encapsulates the idea of a bull market. Strictly speaking, a bull market is when the price of stocks or other securities on an index, like the Dow or S&P 500, rise at least 20% for at least two months
  • Bear market meaning: A bear market is the opposite of a bull market. The metaphor likens the market to a bear going into hibernation. Officially, it’s a period when prices on an index fall 20% or more over at least two months. A bear market sometimes follows a bull market, but not always. 

Investors and commentators also use these words more informally. They may say “it’s a bull market” to indicate that stocks are rising. Likewise, “bear market” can be an informal way to say stocks are falling. You may also hear people using the terms “bullish” and “bearish” to mean that a market or investment is currently increasing or decreasing.

Bull or bear, who cares?

So why does it matter whether a market index is bullish or bearish? Well, it’s all about understanding the market and trying to make predictions about its future behavior.

When stocks are rising during a bull market, it usually means that the economy is strong and investors are confident. When investors are confident, the demand for securities tends to go up. As a result, major markets typically trend upward. Keep in mind however, that all investing involves risk, regardless of trends.

In contrast, during a bear market, investors are generally pessimistic; they don’t feel confident about the economy and may be looking to sell their investments. The lack of demand leads to market sell-offs, with markets trending down.

When you’re considering putting your money into an investment, determining if it’s currently a bull market vs. bear market may not be very important, because it’s likely that both will occur over time. That’s why it’s important to consider your risk profile and time horizon when developing your investment strategy. When you understand bull and bear market definitions and have a solid strategy in place, you can feel less worry during market cycles.

Is it a bear market, or a market correction?

When markets become increasingly volatile, it may appear that a bull market is turning into a bear market. But in some cases, it’s actually a smaller drop called a market correction, which, it’s generally agreed, occurs when indexes fall 10% or more from a previous high.

Some corrections end up being singular, one-off occurrences, but they can still rattle even the most confident investor. Corrections don’t always mean we’re experiencing a bear market or are about to enter one, but sometimes they do.

Where did Bull and Bear markets get their name?

Etymologists, financial wonks, and everyday investors have all wondered… Bulls? Bears? What’s the deal? It’s likely that the jargon came into use in the 1700s or 1800s. Bear may have come first, in reference to speculative investors. The concept of bull markets vs. bear markets, as well as bull and bear market definitions, has also evolved significantly over time.

In the late 1980s, art imitated life when artist Arturo Di Modica created a statue of a charging bull, as a symbol of virility and courage. He began work on the sculpture following the stock market collapse in 1986. In 1989, he reportedly installed the completed “Charging Bull” under cover of night in front of the New York Stock Exchange (NYSE) in the middle of Broad Street facing Wall Street as a gift under the NYSE’s Christmas tree. The NYSE had the unauthorized art carted away the same day, but the public reportedly was so enamored with the statue that the city later it found a permanent home nearby.

Bullish or bearish, Stash is here for you

Bull markets can be exciting, and bear markets can be nerve-wracking. That’s why thinking long-term can improve your investment strategy. Now that you have a better idea of how to determine bull and bear market conditions by looking at financial indicators, you may be better prepared to distinguish investment hype from solid advice. And while no one can predict the future, a long-term strategy may help you grow your wealth. With fractional shares, Stash can help you get started with any amount.

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