Financial jargon can be intimidating, and that’s especially true of the stock market terminology. But even if you’re not an investor, many of these terms can be relevant to your life due to their bearing on the larger economy. You’ve probably heard the terms bull market and bear market, but what exactly do they mean, and what’s the difference?
In this article, we’ll explain bull markets and bear markets, the differences between them, and what they mean for everyone—not just stock traders.
⚡ Quick summary
The term bull market is applied to a market (especially a stock market) in which prices are, on average, rising. A bear market is the opposite—one in which prices are falling. At any given time, the market is usually described as one or the other—with bull and bear markets alternating as part of an ongoing cycle.
What is a bull market?
In discussions of the stock market and the greater economy, the term bull market is typically applied when prices on average are on the rise, or when they’re expected to rise. The terms bull market and bear market are most closely associated with the stock market, but they can also be used in the context of other markets, including those for real estate, currencies, and other commodities.
Using the term bull market is informal—there’s no formal metric to measure or determine when a bull market is happening. Still, a 20% increase in prices is often used as the ballpark figure that indicates a bull market.
Usually, a bull market happens when the economy is strong or getting stronger. High employment rates, high gross domestic product, and other measures of economic well being and stability are generally thought to correlate with bull markets.
Bull markets are often categorized as secular (indicating a period of growth lasting more than five years) or cyclical (indicating a shorter-term period of growth).
In the context of stocks and finance, the related adjective bullish can mean “rising in prices,” “characterized by favorable economic prospects,” or, more informally, “regarding a particular investment as potentially profitable,” as in We’re still bullish on treasury bonds.
As a noun, bull can refer to a person who believes that market prices, especially of stocks, will increase.
Why is it called a bull market?
The first records of bull market and bullish in the context of finance and the stock market come from the late 1800s, but the noun use of bull in the context of stock investment—to refer to both a type of an investment and an investor—predates both. The origin of the use of the word bull in this way is uncertain. In general, the bull is associated with aggression and is known to charge forward, like a rising market. One explanation for the use of the word bull in bull market likens the upward swing of a bull market to the motion in which a bull may attack—by throwing its horns upward.
Do you know the difference between a recession and a depression?
What is a bear market?
A bear market occurs when prices are falling, or when they’re expected to decrease. Like bull market, the term usually refers to the stock market, but it can also be used in the context of real estate, currencies, and other commodities. There’s no formal metric to measure when a bear market is happening, but a 20% decline in prices is sometimes used as the threshold.
As you might expect, bear markets result from the opposite of the conditions thought to constitute or correlate with bull markets. Low economic stability and high unemployment, low gross domestic product, and low corporate profits are traditionally thought to correlate with the downturns associated with a bear market. Like bull markets, bear markets can be categorized as secular or cyclical.
The related adjective bearish can mean “declining or tending toward a decline in prices” or “characterized by or reflecting unfavorable prospects for the economy or some aspect of it.” Or it can be used informally to mean “regarding a particular investment as poor or unprofitable,” as in We’re still bearish on treasury bonds.
As a noun, bear can refer to a person who believes that market prices, especially of stocks, will decline.
Why is it called a bear market?
The noun use of bear in the context of the stock market to refer to types of investments or investors came before its use in bear market, but, like bullish, the origin of these senses is uncertain. In general, while bulls are known for charging aggression, bears—while fearsome—are especially associated with hibernation. This is one interpretation of the use of bear in bear market—likening the retreat of the market to a bear’s dormant period. Another interpretation is that a bear attacks by swiping downward—a motion likened to the downswing of a bear market.
bear vs. bull market
The difference between a bear market and a bull market is the direction of prices and the general success or health of the market. Simply put, it’s a bull market when prices are going up, and it’s a bear market when prices are going down.
To remember which is which, remember that bulls are known for being aggressive and charging ahead, (like the prices in a rising market), while bears are known for hibernating (likened to how investors might scale back investments during market downturns).
A few extreme examples of bear markets are the Great Recession around the 2008 financial crisis and the Great Depression, which roughly began with the stock market crash of 1929. In contrast, the post-World War II economic boom is considered an example of a bull market. But there are many other examples. That’s because at any given time the market is usually described as one or the other—meaning they alternate as part of an ongoing cycle.
Stock investors have many strategies to try to profit from both increases and decreases in stock prices, which means that just because it’s a bear market doesn’t mean there’s not a lot of transactions happening.
