The stock market can seem like a game of chance sometimes — you might wake up one day to find that your investments have grown by 5% overnight, then six months down the line, there was an unexpected crash, and you’ve lost all your gains (and then some).
Technically, a bull market is defined as a time when prices rise — generally by 20% or more.This trend then continues over time, with prices sustaining their highs or continuing to increase; this encourages more investors to join in and start buying, fueling a virtuous cycle of continual price rises.
When you hear bull markets discussed, chances are that it’s referring to stock market indices (namely the S&P 500, NASDAQ, or Dow Jones Industrial Average). However, bull markets can occur in markets for all kinds of investments.
The mechanisms here are very similar to those found in a bull market, except for everything happens in reverse: prices decline, so more investors sell, resulting in prices to continually decline. As a result, you can expect slow growth and high unemployment in addition to declining prices.
Bull markets and bear markets shouldn’t be looked at in isolation — they both form part of the economic cycle. During the economy’s expansion, the bull market is in full swing; then, after it reaches its peak, it creeps into a bear market.
How Should You React to Bull Markets and Bear Markets?
One thing you should have picked up on by now is that you can’t have a bull market without a bear market, and vice versa — the two are complementary and natural, so there’s no need to be afraid of the lows. Eventually, chances are that your investments will regain their lost value.