Comparison - BULL & BEAR Market

A bull market is a rising market. In a bull market, investors are positive. The economy tends to be strong. Unemployment is low. Consumers are spending money, which increases business profits. When businesses profit, investors demand to share a piece of the pie -- they buy stocks and hang on tight to watch the money roll in. The supply of shares, then, is low -- no one wants to give up their piece of the widget pie. The competition to acquire those much-coveted shares becomes fierce, which drives the prices up even higher. Investors take risks because they feel good about their chances of making the big bucks.

A bull market is when the market appears to be in a long-term climb. Bull markets tend to develop when the economy is strong, the unemployment rate is low, and inflation is under control. The emotional and psychological state of investors also affects the market. For example, if investors have faith that the upward trend in stock prices will continue, they are likely to buy more stocks. If there are more buyers interested in buying shares at a given price than there are sellers who are willing to part with their shares at that price, stock prices will continue to rise.

A bear market is a declining market. It tends to begin with a sharp drop in stock prices across the board. There is usually an eye in the storm, during which stock prices increase. But the storm returns, of course, and the bear market falls and falls and falls. History has shown that a bear market tends to level out at 40 percent lower than when it began. Particularly bloodthirsty bears, like the one that ravaged the U.S. during the Great Depression, might level out at about 90 percent lower.

 
In a bear market, the economy tends to be weak. Unemployment increases. Consumers spend less, which results in lower business profits. As we've seen, this devalues a given company's stock. Investors tend to sell their stocks before the value decreases too much. Investors don't want to take risks because they don't feel good about their chances.

A bear market describes a market that appears to be in a long-term decline. Bear markets tend to develop when the economy enters a recession, unemployment is high, and inflation is rising. Investors lose faith in the market as a whole, which in turn decreases the demand for stocks. Keep in mind that a sustained bear market is something that you should expect to occur from time to time, and that, in the past, the stock market has risen more than it has declined.

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