Bull Market & Bear Market: a Quick Explainer
A lot of investing-related language can be straight-up confusing. This can make ownership seem scary and much more complex than it actually is. We’d rather ownership be approachable, so we’re breaking down some of the common terms you might see or hear.
When you find yourself in financial chatter, you might hear folks refer to a “bull market” or a “bear market.” Let’s talk about what that even means.
What’s a bull market?
While there’s no agreed-upon-by-all-parties definition, the general consensus is that a bull market is a time (usually months or years) when the prices of stocks or securities go back up 20% after a drop of 20%. It’s named after the way a bull attacks—charging with its horns up.
A key indicator of a bull market (but one that’s very difficult to measure): folks generally feel more confident about investing. That investor confidence typically continues to climb throughout a bull market. It makes sense, right? When prices are on the rise, it can seem like a great time to invest. This, in turn, can fuel the price rise itself—as demand goes up, fewer people are willing to sell, and prices can go up. (More on that supply and demand relationship when it comes to stock prices here.)
What about that bull statue?
You may be familiar with The Charging Bull—the statue close to the New York Stock Exchange. While the statue has since become iconic, it was first installed by artist Arturo Di Modica in 1989 as guerilla art. In fact, it was actually removed on order of the New York Police Department the very first day it debuted, because it was installed without a permit.
What’s a bear market?
A bear market is the opposite of a bull market. Just like it’s inverse, there’s no universal definition, but it’s generally accepted that a bear market is when there’s a 20% (or more) drop in prices of stocks or other securities over a 2-month period. It’s named for the way a bear goes after its prey—by striking downward.
If investor confidence soars during a bull market, what can you probably expect during a bear market? You guessed it—a general decline in how confident folks are feeling about the economy and investing in general. This can lead to a situation where folks are more likely to sell and less likely to buy investments, causing prices to continue to fall.
Bear markets & market corrections
There’s also a thing called a market correction. This is when prices of stocks and other securities in an index fall 10% or more from a previous high. It’s important to remember that bear markets and market corrections are not the same things, and that corrections aren’t necessarily indicators that a bear market is on its way.
Also, keep in mind that both are a normal part of how the market functions—and panicking never helps in any situation.