The terms are also technically used to describe economic conditions, and this is reflected in the markets. The context of the usage of these terms plays an important role. Typically, bull and bear markets are used to denote a specific asset class such as stocks, bonds, real estate or even the economy.
- A bull market depicts the environment that is generally optimistic and expanding.
- A bear market depicts an environment that is the opposite of the bull market; pessimistic and contracting growth.
Thus, when the markets are rising, the markets are said to be a bull market and when the markets are falling, the markets are said to be bear markets.
Generally, when there is a correction of 20 percent or more from the 52-week high, we tend to refer to this as a bear market, or simply bearish. Depending on who you ask, this can be around 10 percent – 20 percent which is an acceptable range.
Similarly, when the markets rise 20 percent or more from the correction, it is said to be a bull market. Within the bull markets, there is another term called the secular bull market. A secular bull market is one which lasts between 5 – 25 years or more.
During a secular bull market, it’s common to see the markets correcting at least 10 percent over the course.
Origin of the terms
The term bull market is obviously derived from the bull. With its sharp horns that are inclined upward, bulls are known to attack by generally swinging their head upwards.
On the other hand, the term bear market is derived from the bear. A bear generally attacks with its paws, striking down. Another fact about the bears is that they tend to hibernate for prolonged periods of time.
Thus, drawing an analogy from the characteristics of the bull and bear markets, traders generally use these terms to depict whether the markets are going up or down. In other words, it depicts the optimism and sentiment in the markets.
When comparing the bull and bear markets, the bear markets are shorter in nature. Thus, bull markets tend to prevail for much longer. In fact, various studies show that if you look to the S&P500 index over a span of decades, the bull markets outperform the bear markets.
But, of course, we should mention that past performance is no way an indicator of future returns. Generally, bear markets last over a period of 1 or 2 years at best, while bull markets tend to have an average lifespan of 6 years or more.
Characteristics of bull & bear markets
Both the bull and bear markets have certain characteristics described below.
Other terms & uses
The terms bull and bear markets are also used to depict other features of the markets. For example, in central bank terminology, the equivalent of the bull market is hawkish, and the equivalent of the bear market is dovish.
If you look closely, you will find the animal or bird analogy here as well. A dove is usually considered a docile bird, while the hawk sits on top of the food chain. Thus, when central bankers give their speeches or release monetary policy reports, they are either hawkish or dovish.
When a central bank is dovish, it means that the policymakers expect the economy to perform poorly, thus signaling lower interest rates or loose monetary policy. On the contrary, when a central bank is hawkish, it means that policymakers expect the economy to expand. This, in turn, translates to higher interest rates or tighter monetary policy.
In conclusion, whether it is a bull market or a bearish one, or whether it’s dovish or hawkish, you will find that while the terminology may differ, it all refers to the same aspects of the financial markets. It does sound with animal analogies, though.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
International fintech companies Cred and Responsive enter Nexi Open
Cred is a financial technology company based in Tel Aviv and operating in the United States and Western Europe. The...
BHV Partners plans to triple its portfolio and create an investment fund in 2021
BHV Partners, a venture builder specialized in the health sector is looking to invest in up to 15 companies next...
The Colombian Senate approves the legalization of recreational cannabis
The Colombian Senate approved the first initiative to regulate the use of cannabis by adults and paves the way for...
Endesa and Parkia join forces to install electric recharging points
Endesa hopes to close the year with 8,000 recharge points installed in Spain, both public and private, and multiply them...
Caldas Gold, the company that exploits the legendary Marmato gold mine
The company Caldas Gold will take the name Aris Gold, as recently announced, after initiating financing with investors, which will...
Featured6 days ago
Naturgy and Eni to share Union Fenosa Gas and seek to solve the dispute with Egypt
Featured4 days ago
How are ESG company news deciphered with Artificial Intelligence
Business6 days ago
How to identify customer tastes? Wine innovation may hold the key.
Africa6 days ago
A budget of 123.5 billion francs for construction work on Bugesera Airport