If you have ever been to New York City, specifically the financial district, you probably saw the iconic Bull vs. Bear statue. This Wall Street symbol categorizes the two extremes of market trends.
Bull vs. Bear Market Characteristics
The term Bull Market is used to describe a market environment where an asset sees a positive trend in pricing. On the other hand, a Bear Market illustrates an asset class that has seen a drawdown or negative trend in price movement. These trends usually refer to a 20% move in either direction. For example, a 20% bounce from the cycle lows in market prices will usually be referred to as a Bull Market, while a 20% drop from the all-time high will be referred to as a Bear Market. It is important to note that these terms are used for illustrative purposes, and different investors/analysts may use them at their discretion. The 20% move is not a requirement but a guideline on when the term becomes applicable.
Symbolism of the Bull and Bear
But why these two animals? Well, the answer lies in their natural behaviors as predators. A bull typically attacks its’ prey by lowering its’ head and striking upwards with the horns. A bear attack usually involves the bear standing on the hind two legs to strike downwards using the front claws. So, a bull attacks upwards, and a bear attacks downwards. A bull market is heading upwards, and a bear market is heading downwards.
These expressions are used to illustrate the previous performance of an asset class. Market trends are significant because they can guide future market prices, but trends do not last forever. Eventually, that bear market will bottom and rise, resulting in a new bull market. Just because somebody claims the asset is in a bear market does not mean that the asset cannot pivot and move higher instead. The timeframe of such a trend is also challenging to forecast. Will the downturn last three months or three years? It is hard to estimate these factors, so we always recommend using a multi-factor approach to investing. Do not simply rely on the recent market performance to guesstimate where the market may be heading next.
Bull vs. Bear Market – Key Takeaways
- A Bull Market is a term used to express when an asset class is experiencing a positive trend in pricing.
- A Bear Market is the opposite, or when asset prices substantially decline.
- While these expressions are useful in illustrating the recent market trends, they are not always indicative of future price movements.
Have More Questions?
We would love to meet with you to discuss investments, retirement, college planning for kids and grandkids, tax preparation, health insurance, and other financial planning topics. To schedule an appointment, don’t hesitate to contact our office by calling (586) 226-2100!
We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Zachary A. Bachner, CFP®
with contributions by Robert L. Wink, Kenneth R. Wink, James D. Wink, and James C. Baldwin