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An overview of bear and bull markets

01/12/2020

For those brand new to investing, the jargon involved can sometimes prove a tricky obstacle to overcome. That’s why, on our blog, we’re explaining some key concepts and investment types in detail to help you to get your bearings. Next up: what is the difference between a bear market and a bull market?

Essentially, they are terms to describe trends in the market: a bear market is on the rise, a bull market is one that is in decline. The two are named for the ways in which these animals fight: a bull will thrust its horns upwards, while a bear will slash its claws downwards. Here, we explain in more detail. 

 

What is a bear market?

A bear market is one that is characterised by long term price declines: falls in stock prices of 20% or more from a recent high. Bear markets – which may happen alongside more general economic crises, such as recessions – are accompanied by widespread pessimism amongst investors, and can last anything from weeks to years.

While many investors choose not to invest during such times, others see a bear market as a chance to purchase stocks while the price is low, in the hope that they will then rise once again. 

 

What is a bull market?

A bull market, on the other hand, is when a financial market is rising – or where it is expected to rise. Generally, it requires stock prices to increase by 20% – and generally after a fall of at least 20%. 

A range of factors lead to the emergence of a bull market, but it is generally down to a strong economy, and employment levels that are high across the board. 

Bull markets are normally accompanied by a great deal of optimism as well as positive growth – and for this reason, investors will often buy when prices are starting to rise, to take advantage of what could potentially be significant growth. They may then sell when they believe that the stock has reached its peak.  

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