Whether you are a new entrepreneur or a budding investor, you must have come across the terms “bull” and “bear”. These are two common terms in the investment markets and they indicate certain aspects of the market. The commodity, stock, and forex market are all defined by particular moments that can either be categorized as bullish or bearish.
The Bull Market
The bull market is characterized by thriving stocks. Investors put their money in more shares because they see increasing value in the stock. Prices are on a constant rise in this market and the economy is doing well. A bull market is also defined by economic welfare and low unemployment. The GDP is also characterized by growth and there is general investor confidence in the market. Investors who put their money into shares feel that the prices will continue to rise. Positivity thus characterizes the bull market.
The Bear Market
The bear market is the opposite of the bull market. This kind of market experiences negative outlooks. Investors have no confidence in the stock and they actively sell them. Buyers in this market are not as many though, and the prices are on a downward trend. Bear markets come as a result of a poorly performing economy. The unemployment levels are also high in a bear market and there are no signs of improvement in welfare. Investors who are participating in this market and selling their shares are called bears.
The Forces Behind the Bull and Bear Markets
In any given economy, multiple factors influence the direction of the investment market. Some of these factors can be internal while others are external. Traders and investors can monitor the signals in the market by using a bears and bulls power indicator. For a bull market, the key factors that are prevalent in the market include:
- The invention of new technology
- Discovery of new natural resources
- Improved social welfare
These factors among others help bring about stability in the economy. A quick look at the U.S. economy in 2017 shows that services contributed 68% of total output. In a stable economy, such statistics are crucial for investor confidence. When confidence goes high, more money gets injected into the market. This results in improved GDP and overall economic performance.
The forces behind the bear market are also similar. Generally, any major forces that contribute to low investor confidence are characterized as drivers of the bear market. Some of these forces include:
- Rising unemployment levels
- Poor social conditions
- Lack of productivity in the economy
These factors among others contribute to low confidence in the market. The economy starts to fall when the forces take full charge and investors start pulling their money out of the economy. Lack of productivity in the U.S. economy alone could cost over $550 billion according to reports. This results in higher employment levels and increased levels of economic instability.
Predicting Bull and Bear Markets
It is possible to predict whether a market will become bullish or bearish. Experts in the financial markets use various methods to come up with forecasts. One of the key things used by analysts is historical data. The basic premise of forecasts in the financial markets is that markets that are rising are bound to fall eventually and vice versa. Experts, therefore, know that a bull market will always be preceded by a bear market.
Financial markets are defined by the forces of demand and supply. Understanding the market forces is key as nearly 24% of all financial asset value in the world is in stocks. In a bearish market, there is more supply than demand for shares. The prices are low and more people are selling. This is the right time to buy and wait for a bullish market. In a bullish market, the demand for shares is higher than the supply. Investors who sell at this time will make profits.