If you are paying attention to the financial world’s news, you can see that the last few weeks have been something of a rollercoaster. One minute the market is posting record highs, the likes of which we have never seen, and the next minute the market has taken a nose-dive, evaporating any gains made with it.
During times of market turbulence, you see terms being tossed around that you may not entire be sure what they mean. What does it mean when you we are in a bull market? Or when it’s a bear market? Both terms refer to the way in which the market is trending.
A bull market means the market is on the rise. Bull markets are characterized by a consistent increase in market share prices over the course of months or even years. During this time investor confidence is high and they have faith that the upward trajectory will continue heading into the long term. Whenever the economy is in the midst of a bull market, unemployment is low and the country’s economy is strong.
During a bull market, the demand for securities is high, while the supply is low, meaning that many investors are wanting to buy more securities, but there are fewer people that are selling them. The results of this is that stock prices will rise as the investors competitive for the scare resource.
The inverse of these conditions is true in a bear market. During a bear market, the economy is sluggish. Stock prices are regularly dropping in value and investors are confident that this trend will continue for the foreseeable future. As investors lose confidence in the market and begin selling off their stock, the downward trend typically leads to a rise in unemployment as companies begin laying off workers.
Unlike the bull market, when the bear market reigns the demand for securities is low and the supply is high since more investors are wanting to sell their stock before they lose more on their investment. Since the supply is high, the price for the stocks plummet because fewer people are buying,
Whenever the market has a bad day (or good) it does not necessarily mean it is in transition from one market to the other. The market is not a prisoner of the moment. Small movements in the short-term are considered corrections. It is a much longer period of time to determine whether you see a bull or a bear market.
You may be asking yourself where these names for the market come from. The exact origins of the bull and bear markets is not clear, but the commonly accepted explanation for the names are based on how each animal attacks their prey. Bulls drive their horns upward into the air (hence the rise in the market), while bears swipe downward with their paws (meaning a market is on the decline).
There is no magic bullet or sure way to predict the market and its trends. The best thing to do is to be wise on where to invest your money. It is important to remember that over the long term, the stock market has posted a positive return on investment. Take that with a grain of salt as you survey the market.