Bull and bear markets: characteristics and investor implications

Bull Market vs. Bear Market

Bear Market and Bull Market may be defined as polar opposites. Most investors and consumers would consider a Bull Market a much more favorable market than a Bear Market. In a Bull Market, stock prices tend to rise, which means that stock holders will gain profits from stocks that they sell. A Bull Market is therefore, very competitive in nature. An investor that has purchased solid stock options will reap the benefits in a Bull Market. Stock prices for sales are generally higher in these environments. Bear markets are more often associated with a decline in the economy, even a recession. Under some circumstances however, a Bear market may be considered favorable. For the consumer looking for a good deal on stocks that may increase in value over a longer period of time, the Bear Market may offer some benefits. These ideas are explored in greater detail below.

Bear Market may be defined as "a long-term downtrend" (Walker, 2001) which may last several months and extend into years, and typically affects the stock market. A Bear Market is typically defined by "lower intermediate lows" that are interrupted "by lower intermediate highs" (Walker, 2001). A bear market typically exhibits a decline of at minimum 15% in the major stock market indexes (Walker, 2001). Typically the economy is in a downturn during this type of market, and stockholders have a difficult time selling stocks that may not be producing. Alternatively however, those investors looking for a good discount may be able to purchase mass quantities of stock in a firm for much less expensive rates during this type of market. If a stockholder has the ability to hold onto their investment for a long period of time, in some circumstances greater than ten years, the effects of a Bear Market may not be long lasting.

Bull Market is the opposite of a Bear Market, and is typically characterized by a "long-term uptrend in price movement in any market," characterized by "a series of higher intermediate highs interrupted by higher consecutive intermediate lows" (Walker, 2001). A Bull Market typically signifies increasing prices, which may affect the consumer in a negative manner (Walker, 2001). Most investors hail a bull market, as they realize great profits and a stronger economy during this time. If a bull market lasts for a long period of time, consumers are most likely to reap the greatest profits.

A bull market is best for investors because the market reaches greater highs which result in greater profits (Vault, 2003 p.1). Stock prices move up in a bull market, so those holding stocks stand to benefit from a bull market (Vault, 2003, p1). When stock prices increase, the holder has the ability to sell stocks at a greater price than that which they paid when purchased, and will thus reap a benefit from sales. Any investor and consumer that has purchased stocks stands to benefit from a bull market. A bear market may be better for those who are seeking to purchase stocks at a reasonable rate however. In a bear market, stockholders will not be making money and may be more likely to sell existing stocks.