Bull and bear markets explained
A bear market represents a declining market and a shrinking economy. This is usually when the broad market index falls by at least 20% over a period of two months or more. Bear markets can lead to low investor confidence, with fears of economic downturn or even a recession. These can last anywhere from a few months to several years.
The most famous bear market followed the Wall Street crash. The Great Depression began in the late 1920s and lasted almost 10 years – resulting in a decline in industrial production, deflation, and mass unemployment. The financial crisis of 2008 also saw the S&P Index drop by almost 40%, known to be the most severe worldwide economic crisis since the late 1920s*.
In contrast, a bull market is seen as a growing market – a period of solid economic growth, when investor confidence is high, and prices typically rise at least 20% over a time frame of two months or more. Investors are much more optimistic about the economy and bull markets can last anywhere from a few months to several years.
The longest bull market lasted almost 11 years, from 2009-2020, following the financial crash of 2008. The S&P 500 index generated almost 400% as the economy began to recover from 2009-2020.
Sadly, as history shows, bull markets cannot last forever. Increased confidence and overspending can also lead to risk of excessive inflation.
Both markets can be influenced by a change in political or economic circumstances. It’s important to note that whilst sentiment may be optimistic or pessimistic, not all stocks will be affected in the same way, regardless of the overall market. Several factors can affect the performance of individual stocks.