Bull and bearish are the terms used in the stock market to reflect market conditions. The market is called Bull when the price index of the securities rises and the economy appreciates. On the other hand, bearish is the market state when there is an overall decline in security prices, and the economy is expected to go down.
Market conditions do have a significant impact on your investment portfolio. So, there is a need to continuously monitor the state of the market and make operational decisions regarding investment and divestment of the funds.
It has been observed that the investors tend to invest at a time of bullish market to generate a return. On the other hand, in a bearish market, investors tend to divest from the market as they fear the devaluation of their investment portfolio.
Why is the bull market so-called?
A bull market is named after an animal bull that attacks its opponents with its claws and throws it up. The stock market is called Bull when the price index is thrown up.
Why is the bearish market so-called?
The bearish market is so-called because of the bear’s attacking style. The bear pushes its prey down, and hence, the prey falls, and the bearish is the market state where the market index declines.
Difference between bull and bearish market
Following are the differences between bull and bearish markets.
| Bull market | Bearish market |
| Bull is the market when the price index of the shares increases. | Bearish is the market when the price index of the shares decreases. |
| This type of market mainly exists in an economic boom where demand and price of the products increase. | Receding economic activity results in the bearish market |
| There is a higher demand for securities and a lower supply. Investors are willing to purchase the share while there is a limited supply. | There is less demand for securities and higher supply. Investors are not willing to buy the securities, and there is excessive supply. |
| Bull market time is attractive for investors looking to make a profit. | Investors divest their funds from the market and look for long-term return generating, fixed, and stable funds. |
| Businesses show a higher profit level due to enhanced economic activity and signal an overall increase in the market wealth. | Businesses show a lower profit level due to decreased economic activity and signalling a decline in overall market wealth. |
| The best approach is to invest and sell the stock at the time of the market peak. | The best approach is to only invest in securities with the least exposure to external environmental conditions. Investment in fixed-income securities can be a better option. |
| In the bull market, stocks are further expected to increase. Hence, you need to select securities with higher growth potential and stability. | Defensive stocks – the stocks with a minimum hit of external economic conditions can be a suitable approach. |
Conclusion
Bull and bear are the market states that suggests current behaviour. Bull is the market when the price index is upward, and short-term investment can be beneficial. On the other hand, a bearish market is when the price index is on the downside.
A bull market is an excellent place for short-term investments and to make a profit. On the other hand, one needs to be defensive in a bearish market for survival.
Also read, share buyback.
