What is a bull market?

A bull market is a financial term referring to a market in which prices are rising or are expected to rise. Though the term “bull market” is most often used to refer to the stock market, it is also applicable to anything that is traded. For instances, bonds, real estate, currencies, commodities and even cryptocurrency.

Since prices of securities rise and fall continuously during trading, the term “bull market” is usually reserved for extended periods in which a large portion of security prices are rising.

The market experienced one of the fastest market surges in 2021 since the low on March 23, 2020, with the S&P gaining more than 90% and Nasdaq near 112%. The historic gains outpaced the average of 37.5% for all prior markets, and is also the highest first-year bull market gains since 1945.

What causes a bull market?

A bull market is generally demonstrative of economic strength. Taking account of the fundamentally sound policies, proper implementation regimes to ensure adequate production of goods and services, and suitable market conditions to generate sales.

The market is also the result of fluctuations of business cycles, which comprises an upward swing known as the boom. The cycle, affected when the production and growth rates increase substantially, is recognised through the rising GDP rate and bullish market trend. When the national unemployment rates are significantly low and individual’s income per capita increases, speculative demand will follow suit, indicating a bullish market. 

What is a bear market?

Conversely, a bear market refers to a decline of 20% or more of a major stock market index. Such as S&P 500 or Dow Jones Industrial Average (DJIA) and typically over a period of at least 2 months. Bear markets are generally coupled with economic recessions and heightened investor apprehension according to the fear and greed index.

What causes a bear market?

There are a myriad of reasons which could result in a bear market. Common factors include political conflict, shifts in consumer activity, the rate of inflation, and interest rate trends.

Most recently, the Nasdaq Composite, which consists of all Nasdaq domestic and international stocks listed on the Nasdaq Stock Market, entered the bear market in March 2022 following the fears surrounding the Ukraine war, international sanctions, and high inflation. The COVID-19 pandemic also resulted in the 2020 bear market for the S&P 500 and DJIA.