Bulls and Bear Market


 
 
Concept Explanation
 

Bulls and Bear Market

The Bulls and the Bears: The financial markets are a struggle between two competing forces: fear and greed. On the battlefield, this  tug-of-war is waged between the bulls and the bears. What they are and how they operate is crucial understanding the financial system.

  • Bull Market: A bull market is a financial market of a group of securities in which prices are rising expected to rise. The term "bull market" is most often used to refer to the stock market but can be to anything that is traded, such as bonds, currencies and commodities. Bill markets are characterised by optimism, investor confidence and expectations that strong should continue. The onset of a bull market is often a leading indicator of eonomie expansion. Because public senu about future economic conditions drives stock prices, the market frequently rises even before by economic measures, such as gross domestic product (GDP) growth, begin to tick up.
  • Bear Market: A bear market is a condition in which securities prices fall and widespread pey causes the stock market's downward spiral to be self-sustaining. Investors anticipate losses as pessisim and selling increases. Investors can make gains in a becar market by short selling. This technique involves selling the borrowed shares and buying them back at lower prices. A short seller must borrow the shares from a broker short-sell order is placed.
  • The yardstick is: A bull market is a market period where stocks have inereased at least 20 percent A bear market is if stocks have decreased at least 20 percent.

    Characteristics of a Bull and Bear Market: Although we know that a bull or bear market condition is marked by the direction of stock prices there are some accompanying characteristics of the bull and bear markets that investors should be aware of. The following list describes some of the factors that generally are affected by the current market type, but  do keep in mind that these are not steadfast or absolute rules for typifying either bull or bear marikets:

  • Supply and Demand for Securities - In a bull market, we see strong demand and weak supply for securities. In other words, many investors are wishing to buy securities while few are willing to sell. As a result, share prics will rise as investors compete to obtain available equity. In a bear market, the opposite is true as more people are looking to sell than buy. The demand is significantly  lower than supply and, as a result, share prices drop.
  • Investor Psychology- Because the market's behaviour is impacted and determined by how individuals perceive that behaviour, investor psychology and sentiment are fundamental to whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent. In a bull market, most everyone is interested in the market, willingly participating in the hope of obtaining a profit. During a bear market, on the other hand, market sentiment is negative as investors are beginning to move their money out of equities and into fixed-income securities until there is a positive move. In sum, the decline in stock market prices shakes investor confidence, which causes investors to keep their money out of the market - which, in turn, causes the decline in the stock market.
  • Change in Economic Activity- Because the businesses whose stocks are trading on the exchanges are the participants of the greater economy, the stock market and the economy are strongly connected. A bear market is associated with a weak economy as most businesses are unable to record huge profits because consumers are not spending nearly enough. This decline in profits, of course, directly affects the way the market values stocks, In a bull market, the reverse occurs as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.
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