Bull market vs. Bear Market : what differences ?
Although markets around the world have developed considerably over time, their growth has not been linear. Markets alternate periods of downturn and upswing. Less than two years after the euphoria, some markets are during a bear market. But why do we call it a bull market or a bear market?
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"Bull" and "Bear" refer to price trends in a market. When prices rise, it's called a bull market, while when they fall, it's called a bear market. But why is it called a bull market or a bear market?
The term "bull market" refers to the bull that raises its horns when charging. While the bear strikes its prey to the ground with its claws.
What is a bull market?
A bull market is a financial market where prices are rising or are expected to rise. An uptrend is considered to have taken hold when prices have risen by at least 20%.
In this type of market, optimism, and investor confidence reign supreme. Investors who expect prices to rise are known as "Bulls". As investor confidence grows, prices continue to rise, creating a virtuous circle in the markets. For example, recent history was marked by a notable bull market between 2003 and 2007.
Finally, the term "bull market" is most often used to refer to equity markets, but it also applies to bonds or an index (the CAC 40, for example).
What is a bear market?
A "bear market" corresponds to a market decline of more than 20% from its last peak for a prolonged period (at least 2 months). It's a market in which the general trend is downwards.
“Bears” are investors with an accurate view of the markets, in other words, those who anticipate a downturn. Bears then take the upper hand over Bulls, who bet on the upside.
The major problem with a bear market is that it fuels fear among investors, who are tempted to sell assets to "save the furniture". This mechanism is self-fueling and can lead to very sharp declines in the financial markets!
The biggest bears markets in history:
- The American stock market crash of 1929.
- The subprime crisis of 2008.
- The first crypto bear market in 2014.
- The bear market of 2018.
- And most recently, the crypto bear market of 2022. The price of Bitcoin has fallen from $67,000 to $16,000 in just one year.
