What do you mean by Bear and Bull market situation in the stock market?

Introduction

If you are confused about the difference between the bear and bull market, you must read the article. You must have heard these terms in recent years a lot and have always wondered what the meaning is and how it affects the economy of the country?

A bull market is a term given to a stock market condition when it is rising or expected to rise. It is generally said that as markets scale up over time, without falling for more than 20% from its previous 52-week peak, then it is considered as a bull market. Similarly, the term bear market is applied to the market condition when it is expected to fall, or it falls broadly by 20% from its peak.?

During a bull market, the prices of securities continue to rise. In this phase of rising equity prices, investors believe that the uptrend will continue for a prolonged period. Typically, it is seen that the country’s economy is strong and employment levels are high during this phase of the market.?

During a bear phase, the prices fall, and everything declines, leading to a downward trend. Investors believe that this trend will continue, and it prolongs the downward spiral. In this phase, there is slowdown and increased unemployment levels.?

Are you wondering why these phases are named “bull phase” and “bear phase”??

There are numerous stories of the origins for these names. The Common one is this the way these two animals ferociously attack. When a bull is attacking someone, it will thrust its horns up into the air, whereas a bear will often attack when in fear and will bring its opponent down.This movement is metaphorically the characteristic of the market condition. If it moves up, it is considered a market that is charging ahead and when it moves down it is a market that is dragged down.?

What drives a bull and bear market??

A bull and bear market phase occurs due to various economic factors. Historically, it is seen that both phases occur one after the other, in alternation. Some of the factors are as follows:

1. Supply and Demand: Bull and bear markets are partly a result of the supply and demand for stocks. The bull market takes place when there is a strong demand and weak supply for securities. The investors wish to buy securities while only few are willing to sell. Due to which share prices rise. On the flip side ,in a bear market, the demand is significantly lower than supply as more people are looking to sell than buy. As a result, share prices drop.?
2. Dynamic economic activities: In a bull market, Firm’s revenue increases, and the economy grows as consumers tend to spend more due to more cash. Trading and IPO activity also increases during the bull run. On the contrary, in bear market, consumers only spend on essentials leading to lower sales and a fall in revenue. This, in turn, affects the way the market values stock and leads to a negative impact on GDP.
3. Investors’ psychology: Human psychology and stock market performance are also mutually dependent. In a bull market, the increase in stock market prices motivates the investor to invest, in the hope of obtaining a profit. However, in a bearish phase, the reaction is opposite, and investors begin to move their money out of equities and into stable securities, waiting for a positive move in the stock market.

What are the differences in the macro economic factors when there is a Bull and Bear phase in the Market.

1. Economy Prices: In bull phases Equity investments are suitable because they give you more return for more risks you take whereas Stable and safe investments are more desired in the bear market because preserving capital is more important rather than earning higher returns.
2. GDP: Higher GDP growth, Demand and Sales is expected to increase in the bull market and vice versa in the bear market.
3. Inflation: In the bull market the Demand increases, wages increases and the suppliers demand higher prices. In bear market only the essential goods (FMCG goods) are mostly required which in return increases the demand for these goods and their prices increase and put pressure on the suppliers of other goods.
4. Interest rate:? Int. rate increases during the bull market to control the excess liquidity in the economy. Apex bank of the country decreases the interest rates to stimulate liquidity and capex to boost production.
5. Consumer behaviour: People spend and buy stocks in large volumes more in the bull market as their spending power increases and they think the economy will continue to grow. Whereas in the bear market the consumer spending decreases and they only spend on the essentials goods.
6. Employment: The unemployment rate decreases during the bull market because when the company is doing good and growing organically and the economy is booming . In return it creates new job opportunities for the people in the firm because the firm will be able to generate more revenue. Whereas in the bear market the unemployment rate increases because the firms are making changes in its work force therefore it has to lay off its staff.
7. Sentiment of the investors: In the bull run the investors expect the economy to flourish and stock market to grow and they are optimistic in general whereas in Bear market the sentiment is majorly of pessimism.
8. Time of occuring: Bull market is experienced whenever the country is strengthening or is already strong. On the contrary Bear market is noticed when the economy is going downhill.
9. IPO: Companies prefer to launch their IPO(Initial Public Offering) when there is Bull Run to take advantage of the launch and build a profit making stock rather than launching in the bear market and making a loss from the security.

What Strategies should you follow in a bull vs bear market?

The basic mantra for making a profit is to buy low and sell at high. Which means you should buy in a bear market and sell in a bull market.

But this doesn't happen, most investors flock and invest when they see a money making opportunity in the bull run of the equity market and can exit only in the next bull run to make a profit out of that investment. The amateur investor loses hope when sees a bear market and takes exit by booking a loss.

Whenever you are going to purchase a stock in the bear market due to its low price availability you must check its Fundamentals and be sure that it is a good pick, then only you can benefit from it.

If You guys have also experienced the markets, please share your experiences. And If you have any suggestions on the corrections that i can do to improve anything, it would be of great help.