Difference between Bull and Bear Markets

Published on January 10, 2017

Bull and bear markets are two types of trends that describe how a particular financial market is performing. Traders and analysts attempt to predict these trends by studying the prices of stocks, bonds, commodities and other items that can be used to raise finances. When it comes to these financial markets, bull and bear markets mean two totally different things. This article will discuss their differences.

Definitions

Bull vs Bear Market
Curbside brokers at the height of the 1920s bull market

Generally speaking, a bull market is a period in which prices have an upward trend. The term might have its origins in a bull’s temperament, which could be very aggressive and confident. In a bull market, investors become increasingly excited, seeking out stocks, bonds and other items to buy in anticipation of higher profits later on. Bull markets start during a relatively low point in a market cycle; investors start buying assets at low prices, gradually building up demand for these assets until the prices reach their peak. Most bull markets coincide with periods of high economic growth and rising standards of living. This trend continues for an average of 8.5 years, after which prices start declining.

bear market
The deserted Berlin Stock Exchange after the 1929 stock market crash

A bear market is a period in which prices steadily go lower. The term could be traced to commonly-held notions about bears, which are seen as slow and passive. In a bear market, investors adopt a “wait and see” attitude as they become cautious about economic indicators, such as fuel and commodity prices. Bear markets start with a period of near-euphoria, then transition into a time of widespread pessimism among investors and the general public, resulting in lower demand and lower prices for many types of assets. Many bear markets coincide with other events, such as rising commodity prices and poor economic planning. While bear markets last 1.3 years on the average, their impact can be felt far beyond that period, sometimes wiping out gains experienced in the not-so-distant past.

Bull vs Bear Market

What are the differences between a bull market and a bear market? They differ mostly in terms of investor confidence, market behavior, asset prices, length and impact.

Investor Confidence

In a bull market, investors aggressively seek out and buy assets that they predict will become more valuable in the future. In contrast, a bear market is one in which investors are not so confident about the future value of the assets they currently hold and the ones that are available for sale.

Market Behavior

Bull markets are characterized by a brisk and positive movement of the different financial markets, with these markets gaining value quickly. Meanwhile, bull markets feature slow, negative movement among financial markets, with these markets seeing their value decrease.

Asset Prices

Because of investor confidence, the demand for assets in a bull market drives the prices of these assets higher. The opposite is true for a bear market, in which there is little or no demand for these assets, resulting in rock-bottom prices.

Length

On the average, bull markets last for around 8.5 years. In comparison, bear markets usually last 1.3 years.

Impact

Bull markets are typically associated with and contribute to periods of high economic growth and rising standards of living. Bear markets, on the other hand, usually coincide with and contribute to economic crises brought about by external or internal factors, such as poor economic planning or rising commodity prices.

Comparison Chart

Bull MarketBear Market
Investor confidence is highInvestor confidence is low
Market trend is brisk and positiveMarket trend is slow and negative
Asset prices go higher as demand risesAsset prices go lower as demand lessens
Has a positive influence on economic growthHas a negative influence on economic growth
Lasts an average of 8.5 yearsLasts an average of 1.3 years

Video

Watch the video below to find out more about the difference between bull and bear markets.