When it comes to investing it is always important to understand the prevailing market conditions. Bull market and bear market are other terms that people use to refer to the general movement of the stock market. It is always important to determine whether the market is in a bull run or a bear run as this will greatly affect your investment and portfolio allocation.

What is a Bull Market?

A bull market is one with stock prices on the rise and a prevailing positive outlook among investors. It is understood to be an environment in which a broad market index increases by at least 20% over at least two months. This period is characterized by positive economical signals, including economic growth, low unemployment rate and high consumer expenditure.

For instance, the bull market that started in March 2009 and ended in February 2020 was characterized by tremendous economic advancement and stock price rebounds after the financial crisis of 2007-08. This period saw the S&P 500 rise from 676 to 3,386 points, which showed that investors believed that the market was going up. Some of the drivers that helped to fuel this bull market included technology, sustained corporate earnings, and accommodative monetary policies.

Here are the indicators of a bull market:

• GDP Growth: Higher GDP means that an economy is progressing and consumer spending is on the rise. For instance, throughout the 2009-2020 bull market, the US GDP expanded with an average annual rate of 2.3%, which is an indication of improved economic performance.
• Stock Price Surge: The increase in stock prices in the stock market game signifies that investors and the economy are healthy. For instance, the S&P 500 index rose by more than 250% in response to the bull market that took place between 2009 and 2020.
• Employment Boost: Positive economic growth results in employment opportunities and reduced unemployment levels. The US unemployment rate has reduced from 10% in 2009 to 3.5 percent in 2019, which is the lowest since 1970.

What is a Bear Market?

Bear market on the other hand is characterized by declining stock prices that are accompanied by a negative outlook on the market. It is the decline of more than 20% of a broad market index over a period of not less than two months. This time is usually characterized by slow economic growth, high unemployment level and low consumer expenditure.

For instance, during the 2008 financial period there was a 39% loss of the S&P 500 index as a result of a recession. This period was marked with massive loss of employment as the unemployment rate in the US was recorded at 10 percent in October, 2009. The 2008 bear market was primarily started with the bankruptcy of Lehman brothers, a sharp decline in the housing market, and a credit squeeze.

Here are the indicators of a bear market:

• High Unemployment: In this occurrence, businesses suffer money losses, and the rate of layoffs rises. Layoffs occurred in the financial year 2008; millions of people lost their jobs, and the unemployment rate reached 10%.
• Falling Stock Prices: When buyers show a lack of interest or have lost their confidence, the price of stocks decreases. It went down to as low as 6,547 points in March this year from a high of 14,164 points in October 2007 in the Dow Jones Industrial Average.
• Short-lived Duration: Bear markets as mentioned earlier are much more difficult opposition to bull markets which are relatively shorter in duration. The bear market began in 2008 and lasted for 17 months while the bull market started in March 2009 and was still running up to November 2019.

Key Differences Between Bull Market & Bear Market

Aspect	Bull Market	Bear Market
Market Trend	A continuous upward trend in stock price as a strategic goal. For instance, the S&P 500 has increased by more than 300% in the 2009 to 2020 financial period.	The fourth factor includes sustained decrease in the overall stock prices. For example, in 2008, S&P 500, the index of 500 large companies in the United States, declined by approximately 40%.
Investor Sentiment	Hoping and expecting that the stock prices will rise again due to increased buying activity	Bearish and Risk shy which influences activities on the sell side
Economic Indicators	High value of gross domestic product, low rate of unemployment, high consumption expenditure	High unemployment levels through economic stagnation and low levels of consumer expenditure
Investment Strategy	Triple squeeze – means buying before others, holding on the stock, and then selling it when it gets to the highest demand	It is recommended to buy fixed-income securities, go short or look to invest in defensive stocks
Supply/ Demand	Demand is high but supply for securities remains low, thus pushing prices upwards	Little desire for the security among consumers, high availability of the securities, which pushes down the value
Psychological Impact	Promotions causes more investment because prices are increasing	Reduces investment because prices are lower and discourage purchase due to feedback loop
Economic Activity	High levels of economic activity, fortified corporate earnings, and solid industrial output	Weak economic activity, low corporate profits, and a decrease in industrial production

Characteristics of Bull & Bear Markets

Demand & Supply Fluctuations in Securities

Bull market enables the stock prices to rise since there are many people willing to buy the shares in the market. For instance, during the dot-com period at the end of fifteen the consumers’ demand for the technologies’ stocks was high while the stocks available in the market were few.

In contrast, in bear markets, high production and low demand leads to a low stock price because more investors are trying to sell shares. Liquidity is thus very sensitive to what happens in the market as was demonstrated by investors who panicked during the 2008 financial crisis and started to liquidate their stocks, thereby putting more supply in the market and depressing prices.

Investor Psychology

In a bull market, positive sentiment leads to buying more shares resulting in increased prices and hence comes the cycle. For example, during the 1990s what became known as the ‘Bull market’, internet-based opportunities such as Amazon or Google, became popular and this led to considerable changes in the market.

On the other hand, a bear market triggers the liquidation of such stocks and the flow into safer investments that will further depress the prices of various equities. The financial loss experienced during the same period led to increased fear among investors and scarcity of capital, thus worsening the situation following the occurrence of the 2008 crisis.

Economic Activity

In case of the bull market, healthy economic performance with higher purchasing power ensures that corporations record better revenues and increased returns in the stock market game. In the period after the post war economic recovery, consumer demand and consumption increased and so did factory production, leading to a long period of market highs.

On the other hand, the bear market reflects the fact that weak economic activity is statistically associated with lower company profits, which in turn are reflected by lower stock prices. Other examples include the Great Depression in the 1930 that resulted in a massive shrink in economic activity, high unemployment, and several years of a bear market.

Gauging Market Changes

Whether the market is in a bull phase or a bear phase must be observed beyond short-term volatilities. Therefore, they must be based on longer periods. It is important for a trader to be aware that short-term fluctuations do not measure up to bull or bear markets. However, these market conditions are better characterized by long-lasting processes lasting for months or years.

Strategies of Investing during The Bull and Bear Market

Bull Market

This involves buying securities before prices go up then awaiting the right time to sell them. Such losses are infrequent and stingy in most cases. For example, in the 2010s when the bull market was active, investors who invested in shares of companies such as Apple, Microsoft, Amazon among others in the technology sector reaped big.

Bear Market

Stick to safer investments as much as possible such as fixed-income securities or decide to short sell securities instead. There are defensive stocks which are operating in defensive industries and these include stocks associated with utilities and consumer staples. In the 2008 bear market, bonds and gold were traditional safe havens because the price of these assets helped cushion against declining stock prices.

Conclusion

It is imperative to have basic knowledge and distinction between bull and bear market. Conversely, while there are lots of profit making opportunities in bull markets in the stock market game, one needs to be very selective in trading during a bear market to avoid making huge losses. By identifying the features and signals of each of the market states, you can formulate a more efficient strategy in dealing with the stock market.