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In money and finances, understanding the difference between a “Bull” and “Bear” market is important, as they describe the movement of stock markets up or down; however, the stock market and the economy aren’t the same. They are related but different concepts:
Stock market: The stock market is a platform where individuals and institutions can buy and sell shares in publicly traded companies, bonds, funds and more. The stock market is a subset of an economy.
The economy: The economy is a broader concept encompassing all activities related to producing, distributing, and consuming goods and services within a given region or country.
What is a bull market?
A bull market is defined as a period of steady stock price increases. Bull markets are typically characterized as having a sustained increase in stock prices by at least 20 per cent over previous lows.
With stock prices and other assets appreciating in value, investors tend to be more optimistic and confident as they see stock markets rising. Bull markets are typically influenced by factors like a strong economy with low unemployment. This is when investors may profit from their investments; however, it’s important to note that bull markets are not immune to market corrections.
What is a bear market?
A bear market is where an index or asset shows a period of declining prices of 20 per cent or more from previous highs. With stock prices and other assets depreciating in value, investors tend to be more uncertain and more concerned about losses. Bear markets are typically driven by economic downturns, rising interest rates and/or geopolitical uncertainty.
The good news is that, based on historical data, bull markets tend to be stronger and last longer than bear markets, meaning that periods of potential stock market gains typically outweigh periods of decline.
One way to remember the characteristics of bull and bear markets is to remember this: bulls charge with their horns pointed up … bears destroy with downward movements.
When the market movements are affecting your money, it’s important to remember that patience and a long-term perspective may be critical to your financial picture. Significant movements in the market — in either direction — may feel overwhelming. Creating and sticking to a clear investment strategy may help you maintain your financial momentum.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.