Bull and bear markets - the basics in 60 seconds

Bull and bear markets - the basics in 60 seconds

What's a bull market?

A bull market is a sustained period where prices rise. The trend is up, but not everyone will agree on how long that period must be to qualify.

For stocks, people often consider a 20% rise in stock prices a bull market (when following a previous 20% decline).

You might also hear people talk about being “bullish” on an investment. If you’re bullish you are confident, you have an optimistic outlook.

One suggestion for the origin of the term “bull” is that a bull thrusts its horns up. However, when a bear fights it swings its paws down. 

A bull market ends when stock prices fall 20%.

Bull

What's a bear market?

A bear market refers to a downturn in the market, one where stock prices are falling. In investing, if you expect prices to fall you will be referred to as “bearish”.

It has been argued the term could be related to bearskin sellers of the 1700s – also known as the the “bearskin jobbers” – and the phrases “don’t sell the bear skin before you’ve caught the bear” or “to sell the bearskin”.

These “bearskin jobbers” were middlemen who sold bearskins before they had received them – speculating on the future purchase price in hope that it would drop and they could profit on the difference.

Today we call this “short selling”.

Bear

How long do bull markets last?

It's important to remember that bull markets don't last forever!

Last month the US equity market set a record for the longest bull market in history. It began on 9 March 2009 and so far has lasted more than nine years - and it's not just US stocks that have risen.

MoneyLens' David Brett has summarised the five biggest bull markets over the past 50 years (here): 

  1. The 1970s economic recovery (just over six years)

  2. The Reagan-era presidency bull market (five years)

  3. The great expansion of the 1990s (just under nine-and-a-half years)

  4. Pre-global financial crisis bull market (five years)

  5. Post-global financial crisis bull market (began March 2009 - the longest on record)

Meanwhile Duncan Lamont, head of research and analytics at Schroders, where we work, has pointed out that last year was the first time in 35 years (which is as far back daily data allows) when there wasn’t a single seven-day period where US equities fell by more than 2%.

He said: "It's a reminder of the calm progress made by shares last year. But it also raises the possibility that investors may have forgotten what it feels like to lose money. This is not normal. I repeat. This is not normal". 

Investors always have to remember that just because they didn't lose money last year doesn't mean they won't this year.

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