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An Overview of Bull and Bear Markets

“Bull Market” and “Bear market” are two terms you’ve heard before but may not completely understand. No matter if you’re new or experienced investors, it’s good to review how both market types work.

What is the Bull market?

Let us take an example first to understand the

Bull market. Let us visualize a bull charging towards its target. The bull is moving strong and confident. Exactly what the bull market is. 

A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. It is a period of generally rising prices.

Going to technical sore, usually, a bull market marks a rise in stock prices, which follows a previous 20% decline and is followed by another 20% decline.

Characteristic of a bull market :-

  1. High investor confidence :

When investors feel bullish about the market trends, they choose to make bolder investment decisions.

  1. Business profitability:

The bullish reflects that the profit of the business is at its peak or is increasing rapidly.

  1. Specific interest rates:

When the central bank raises interest rates, bonds can enter a bull market because they will  pay a higher return on investment.

  1. Overall stability:

Market indexes thrive when businesses are stable and predictable. This stability would help kick-start  a sustainable market.

What is the bear market?

Continuing the above animal theory, a bear market is named after how bear attack its prey as well with a forceful downward swing. So, this term usually refers to a downward move in the stock market.

A bear market is defined as the prolonged period in which investment prices decrease at least 20% from their historical average. 

Going to the technical side, a market must fall 20% or more from its most recent high to be considered a bear market, where it remains until it rises 20% from its lowest level.

A bear market occurs when there’s been a significant, continuous fall in the stock market.

Despite having a negative reputation, bear market can offer good buying opportunities to patience investors.

Characteristics of a bear market:

  1. Investors turn pessimistic.
  2. Stock values decline.
  3. Investors’ sentiments turn negative.
  4. Companies make less money.
  5. A turnaround occurs.

Difference between bull market and bear market.

 What’s the greatest rival in the world? A few that probably come to your mind are, “Messi vs Ronaldo” in football, “India vs Pakistan” in cricket or any such. Let’s add one more “Bull market vs Bear market ” in the financing world. 

Some of the difference between bull market and bear market that you must know are: 

S.N. Bull market Bear market
1. Bull market means the market is up. Bear market means the market is down.
2. It causes the rise in the GDP of the country. It causes a fall in the GDP. 
3. Low unemployment. High unemployment.
4. Sign of optimism.  Sign of pessimism.
5. Involves buying of stock in large volume. Involves selling of stock in large volume.
6. Investors’ confidence will tend to climb.  Investors’ confidence will tend to decline.
7. The stock position is long. The stock position is short (short selling). 

Are we in a bull market or bear market?

   Let us see the bull period and bear period in Nepal:

Bull period:

  • Period 1: 2055/56 to 2056/57
  • Period 2: 2060/61 to 2064/65
  • Period 3: 2068/69 to 2072/73

Bear period:

  • Period 1: 2057/58 to 2059/60
  • Period 2: 2065/66 to 2067/68
  • Period 3: from 2073/74

Now let us look some of the latest stats in NEPSE index: 

On 25th November 2019 the market was found at 1110 levels. From 25th Nov 2019 to 1st march 2020 the market gained momentum. On 1st march 2020 the market reached 1667 levels and closed at 1591 index.

Just before the first lockdown period, due to the impact of Covid-19 the NEPSE index had fallen from 1667 to 1269 levels.

Looking all these stats, we can see that the market is hoping up and down, time and again. So, we are currently neither in the bear nor in the bull market. We are currently in the Kangaroo market.

Note:

 Kangaroo market is a newly defined market, which states that the market hops (moves) up and down without any strong uptrend or downtrend for a period of time. 

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