Bullish vs Bearish: Explained
You may have heard the terms bullish or bearish from various stock market or investment news outlets. These sources frequently classify the market conditions based upon the forecasts of stock traders and investors.
If you’re new to the investing world, there are a few characteristics of bullish vs. bearish markets that can help you understand what these terms mean.
Understanding the Investing Terms Bullish and Bearish
How investors feel about market conditions drives stock market performance. Whether there is a bullish or bearish market reflects how most investors believe the stock market is going to perform in the future.
What is a Bullish Market?
A bull market indicates a belief that the stock market will rise in overall value. This usually comes from increases in the market share prices for the overall stock market.
People typically use the term when the stock prices and the market have increased in value over at least a few months. Sometimes years.
Sometimes it may refer to segments in a market. For example, people used the term bullish for the cryptocurrency market when the prices of Bitcoin had risen substantially over the course of multiple months.
What is a Bearish Market?
Investors use the term bear market when they believe the market is going down in value. If stock market value prices have been on a decline for a few months or year, then investment news outlets may refer to the market as a bearish.
Again, this can always be a term used to describe the conditions of a market segment when those shares have decreased in price.
Differences Present with a Bullish vs Bearish Market
You can better understand bullish vs bearish markets by considering what economic, political, societal, and global conditions push the stock market’s value in an upward trend or downward spiral.
Bull markets indicate share prices in the stock market increasing in price. But, the term also is used when the economy is doing well. Again, this term indicates how people believe the market will continue to perform in the future. While past performance is one condition that helps investors judge future conditions, other factors come into play.
For example, if investors expect a major change in politics or in interest rates, this may increase the confidence of the market. Or, confidence may decrease due to fear of future conditions.
Low job unemployment rates and a robust economy are other conditions usually present in a bullish market.
If the economy is doing poorly and the job unemployment rate is high, then investors may be bearish on the market. This will usually be coupled with declining stock prices and value.
Recent events can play a huge role in overall market outlook. For example, there are concerns that the coronavirus will continue to impact share prices.
This has lead to news sources calling the stock market a bearish market right now. Rapidly changing events can cause a bear market when investors believe that the declining stocks are due to factors that will continue to worsen.
Characteristics of Bullish vs Bearish Markets
The characteristics that you should pay attention to in understanding these terms can be summarized into a few categories.
Change in Economic Conditions and Related Indexes:
- When the economy is doing well, this can point to a bullish market. Job indexes and other factors can help investors evaluate how they believe the economy will do in the future.
- If economic activity is suffering, it may indicate a bearish market. A down economy could mean people have less money for investments. And companies can suffer from decreased business and revenue. All of this can hurt share prices. If this is sustained for some time, then conditions could lead to news outlets suggesting there is a bearish market. At times, severe economic crises can cause this term to be used very quickly.
Psychology of Investors and Traders:
- When investors lack confidence in how the market is performing or in how it will perform in the future, then fewer shares are bought and traded. This will cause prices to decline and may indicate a bear market.
- On the other hand, confident investors that feel the market is heading in a strong position, may put additional capital into the stock market. This will support a stock market value increase and lead to a bullish market.
Supply and Demand of Shares and Other Securities:
- When there is a bullish market, more investors are seeking out shares to buy. However, it may be the case that fewer shareholders are willing to sell their stock to meet this demand. As such, there is a greater demand than supply when market conditions are bullish.
- Bearish markets lead to the converse. More investors may wish to sell to lessen fears of increased losses should they wait. Panic can also trigger increased sell-offs. If there is fear over the strength of the economy and markets, fewer people will invest. And the demand for buying stocks will not be as high. This will cause the supply from the shares sold to be higher than the demand.
Why Understanding the Difference in Bullish vs Bearish Market Terms is Important
Knowing whether other investors are bullish vs bearish on the market can help you decide whether you should adjust your investment portfolio. Or seek advice from a financial expert.
Buying during a bearish market can be a valuable long-term strategy. But, it will come with risk if the shares’ value does not rebound. Or if the economic conditions lead that company to go bankrupt.
All markets go through cycles. We had a strong bull market for 11 years. And that was followed by the shortest bear market of all time. This volatility can be extremely concerning for investors and those nearing retirement. To help you through these wild times, we suggest signing up for our Liberty Through Wealth e-letter. It’s filled with sound financial advice regardless of market conditions
About Ben Broadwater
Ben Broadwater is the Director of Investment U. He has more than 15 years of content creation experience. He has worked and written for numerous companies in the financial publishing space, including Charles Street Research, The Oxford Club and now Investment U. When Ben isn’t busy running Investment U, you can usually find him with a pair of drumsticks or a guitar in his hand.