Oluwaseun Ibitoye
Bullish and bearish are two terms used when describing the direction of an economy. The term bullish is used about a market, industry or investment asset with a strong belief in its value. This could be due to macroeconomic factors such as positive interest rates, substantial GDP growth, low inflation levels etc.
On the other hand, the term bearish refers to a market condition in which there are significant doubts about an asset’s future worth or prices are expected to fall. Bearish conditions may result from macroeconomic factors such as high-interest rates, economic slowdown etc.
Conditions that could cause a rise in stock prices:
Economic growth and low unemployment rates created by government policies; lower interest rates due to accommodative central banking policy tend to boost consumer wealth and spending, thus encouraging economic growth through their respective business activities.
This creates demand-driven inflation in goods and services, causing a general price increase in the economy that encourages corporate investment and expansion, thus creating job opportunities. Policy changes regarding foreign investment have allowed more significant opportunities for the inflow of money from overseas to enter the market.
Conditions that could cause a fall in stock prices:
Economic recession and high unemployment rates created by government policies; higher interest rates due to restrictive central banking policy constricts consumer buying power, thus discouraging economic growth through their respective business activities.
This creates supply-driven inflation in goods and services, causing a general price increase in the economy that discourages corporate investment and expansion, thus decreasing job opportunities. Policy changes regarding foreign investment have discouraged the inflow of money from overseas to enter the market.
Bull/Bear Market Characteristics:
A bull market is generally characterized by optimism for potential gains. It usually follows a period of downtrend, uncertainty and recession. Demand for assets such as stocks, commodities and currencies is high, bringing prices up.
A bear market is characterized by widespread pessimism that causes asset prices to go down. Investors lose their confidence in the value of certain assets, and they liquidate them leading to a fall in prices. Bear markets usually follow periods of high investor optimism when the economy is doing well.
Bearish Market Conditions:
Bearish conditions may result from macroeconomic factors such as high-interest rates, economic slowdown etc. When demand for an asset falls due to expected lower future returns or lack of faith in its potential growth, it creates a bearish outlook on the market, resulting in falling share prices and commodities. On the other hand, higher interest rates and taxes on investments lead to lower investor demand, and prices fall.
Bullish Market Conditions:
Typically, a bull market is fuelled by anticipation of higher returns. Higher interest rates will also fuel this growth as investors seek out high returning assets. If the market expects an economy to remain firm or improve further, it may create optimism around its potential future growth, resulting in rising asset prices.
Such conditions are typically seen after economic recessions when sentiment improves, increasing demand for shares driving share prices up. During bullish periods, investors look for opportunities to yield high returns, such as stocks that have performed poorly over the last few months or years.
Macroeconomic Indicators:
You can establish whether the market is bullish or bearish by monitoring key economic indicators. This will give you an idea of the current climate in the economy. The most frequently watched indicators include GDP growth, inflation levels, unemployment rates etc. If these indicators are increasing, it shows that the economy is strong and expanding, leading to higher prices for assets, including stocks, commodities and currencies.
Bottom Line:
In a bullish market, prices are rising due to government policies and low unemployment rates.
In a bearish market, prices are falling due to economic recession and high unemployment rates. The bull and bear markets concept can also apply to Singapore’s currency, the SGD. New traders interested in CFD trading in Singapore should use a reputable and experienced online broker from Saxo Bank.
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