Meaning Of Bull And Bear In Share Market
05 January, 2024
Bull and bear meaning in financial markets
Bulls and bears are two important metaphorical terms of financial markets. These terms are used regarding the fighting behaviour of the two animals. In stock markets, bull and bear symbolise distinct market conditions, which can impact investor behaviour and overall market sentiment.
Bull market
The term "bull" describes how a bull charges at its adversary. It strikes the target with its horns, causing an upward force. Similarly, a bull market is associated with upward trends in the market.
This market is characterised by a continuous increase in price levels for a significant period. The continued growth in stock prices leads to increased levels of investor confidence. This translates into higher purchase volumes, driving the prices to rise further.
A bull market is accompanied by robust and flourished economic conditions. As assets become more valuable, the profitability of the business environment increases. This can cause the unemployment rate to drop, and the economy to grow as a whole.
The bull market helps the economy get more powerful. As stock value rises, investors feel more keen to enter new trades. It becomes easier for companies to raise capital via different sources, thus reducing the cost of conducting business.
Bear market
The term "bear" is used in reference to how a bear attacks its target. It strikes at the target with its claw, causing the target to fall. Similarly, a bear market is associated with a downturn in the market.
This market is characterised by a continuous drop in price levels for a significant period. The continued decline in share prices leads to a fall in investor confidence. This finally translates into increased selling pressure, driving the prices to fall further.
A bear market is accompanied by a downturn in the economy. It is characterised by deteriorating asset values and declining corporate profits, causing businesses to downsize. This can cause the unemployment rate to rise and the overall economic sentiment to get a negative outlook.
Bear markets are significant because they act as a corrective phase for inflated and overvalued assets. They tend to test the investors’ risk appetite. While the current portfolio loses its value, this situation also opens the gates to opportunities for buying more financial instruments at discounted prices. Investments conducted during this phase hold the potential to yield substantial returns in the future, especially as the market stabilises and price levels experience a rebound.
Several indicators can help you predict if a prolonged bullish or bearish phase is emerging in the market. A sudden change in the economy can cause the overall outlook to become negative, e.g., a crisis can lead to a bearish market. On the other hand, some news or event that impacts the economy positively can lead the whole market to become bullish.
As it is rightly said - history repeats itself - markets are known to follow a trend. The bull will attack, and prices are bound to swell up every few decades, right before the momentum is broken and the bear plays its corrective hand.
Implications of bullish and bearish markets
Both bull and bear markets have an important role to play. While one helps the economy to strengthen, the other acts as a market corrector. Below are some crucial implications of the same.
Investment strategies: Various bull and bear trading strategies prevail in the markets.
Bull markets find strategies like momentum trading, sector rotation and growth investing to be more successful.
Bear markets support a more stable and risk-averse approach to strategies like values investing, diversification and dividend investing.
Irrespective of the market conditions you are in, it is crucial to adapt and respond to changing environments regularly by adjusting the strategy to survive in such markets.
Balance in the market: Given the differences in risk appetite and the speculative approach of traders, they follow a bullish or bearish approach even in normal market conditions. A segment of traders will bank on a certain asset's price to fall to reap higher returns from their short positions, while another group will be hoping for the asset to behave like a bull to gain from their long positions.
As long as the two sides co-exist in the market, the volume of purchases and sales across different assets will remain equitable. Thus, the markets will be less likely to be extremely volatile because of one-sided demand or supply-side pressure.
Government policies: A bull market benefits investors, businesses and the government. These markets are characterised by increased economic activity and are accompanied by higher capital gains. This translates into higher tax revenue for the government, both in corporate taxes and taxes on investors' capital gains. The government may implement relevant measures to prevent the markets from rippling down due to overheating.
On the contrary, in bearish markets, the overall economy takes a downturn, along with the government’s revenue. In such situations, the government may have to implement supportive policies that stimulate economic growth. Both the Central Bank and government engage in easing the policies by lowering interest rates and increasing the fiscal flow of funds in the economy.
Conclusion
Understanding the implications of bull and bear market situations is crucial for an informed and well-strategised investment decision. You need to envision your long-term goal, diversify your portfolio, and hedge risks to survive in the markets.
We hope this article has helped you understand different market conditions. To take advantage of both phases and trade smartly in the stock markets, you need a Demat Account. Apply for the HDFC Bank Demat Account today. It can be opened instantly and used to invest in a wide variety of financial instruments.
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*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
