Two of the most recognized financial terms are “Bull” and “Bear” markets – but what do they really mean, and how can you remember the difference between the two?
Like any profession, finance has developed its own colorful language.
Two of the most recognized terms are "Bull" and "Bear" markets- but what do they really mean?
- A bull market is a general rise in stock prices or more specifically, an index such as the "Dow" or the S&P 500. While there is no precise definition for a bull market, it is characterized by a dramatic increase in overall stock prices over an extended time period.
- A bear market is when there is a general fall in stock prices. The classic definition of a bear market is a 15% drop in the value of the stock market that lasts for more than six months.
- You may occasionally also hear about a "correction". These are defined as a drop of 10% in the overall markets.
But, why call it "bull" and "bear"? And how can you remember the difference between the two? Ironically, a good way to remember may be to keep in mind how each animal attacks its prey.
A bull attacks with its horns going upward, and therefore a "bull" market is a consistent upward trend in the stock market. Conversely, the grizzly bear presses down on its prey giving us the term "bear market" which corresponds to a long period of steady decline.
In general, the stock market moves in sync with the broader economy. Thus, over time, the market experiences both "bull" and "bear" phases. A full market cycle refers to the natural alternation of "bull" and "bears" markets. So, as you can see, while investing may have its own specific language, like most things, it's easily deciphered with patience and some rather simple explanations.