The bull and the bear are animals whose names are used to indicate trends in the stock market, not to mention the entire financial world as well. Although there are many tales about how these two animals became associated with the financial world, the most popular explanation draws from how they attack — the bull by thrusting its horns upward, while the bear by swiping down at its prey. Though initially coined as terms that describe the overall market condition, these expressions have crossed over into mainstream lingo and now are commonly used in everyday talk, and don’t always necessarily refer to the financial markets.
Bull vs. Bear Markets
The “bull vs. bear market” expression indicates a prevailing trend in the stock market — generally speaking, whether it is gaining or losing value. More importantly, however, the expression is an indication of the investor’s outlook on the market as a whole. In general, these expressions typically coincide with certain economic cycles (see below) that have occurred with great regularity throughout the years. As an aside, sometimes these terms are used when describing one certain industry (or one stock in particular), as in “I’m bullish on the cloud computing sector.”
What’s the Difference Between a Bull vs. Bear Market?
Simply put, a bull market occurs when there is a sustained price increase in the major indices, while a bear market denotes a downward trend of stock prices. If that sounds vague and unscientific, it’s because it is, as there are no “official” metrics that indicate either trend. It is generally implied that a 20% or greater change over two months (or since the last change — either up or down) in the market index (higher for a bull market; lower for a bear market) is the benchmark. However, as mentioned earlier, these terms are used in certain situations (such as specific stocks or sectors) and not necessarily for the market’s overall behavior.
And although the stock market has its own set of idiosyncrasies (as well as surprises), in most situations, economic growth runs in tandem with a bull market; conversely, contraction accompanies a bear market. Certain conditions in the financial markets as well (as the world as a whole) affect the economy, which in turn can cause a bull or bear market.
How the Economy Can Cause Market Fluctuations
The economy is an extremely complex concept that has several moving parts, and there is almost no way to have a grip on all of it. However, there are several factors that can sway the market to be bullish or bearish. These include the following:
- The GDP: A gross domestic product (GDP) trending upward helps a bull market; conversely, the reverse is true for a bear market. Because of this, bear markets are closely linked with recessions and depressions.
- Unemployment: Similarly, the employment rate is also a factor to the market. A low unemployment rate runs parallel to a bull market; in tougher economic times, there tend to be more layoffs, which is consistent with a bear market.
- Inflation: Price inflation is a slippery concept, as it can occur in both types of markets. However, inflation during a bull market can be one of the indicators that the bull cycle might be coming to an end.
- Interest rates: The Fed keeps rates low during the good times, and boosts them when things get tougher, meaning rate hikes are closely linked to bear markets. Having low rates is more conducive for a growing economy.
The Impact of Market Changes
The way the pendulum swings in the marketplace (whether it’s bullish or bearish) has a definite impact on M&As, investing and bankruptcy and restricting:
Interest rates, global geopolitical issues, changes in regulations and industry consolidation, all of which are affected by the overall sentiment of the economy, all influence M&As. A lot of the success of M&As is in the timing, as bull markets are far more advantageous to the seller than bear markets.
In good times (bull), public (and investor) sentiment is generally positive. Investors tend to hold investments whose values are expected to increase. Bear markets are a little more problematic to deal with, as often they are triggered by events unrelated to the market, such as natural disasters or pandemics, wars and other political conflicts, corporate performance and general unrest over inflation and deflation.
Bankruptcy and Restructuring
Similarly, a downturn in the market will result in more bankruptcies and corporate restructuring. Economic factors, global unrest along with new policies and regulations ”“ all factors out of most everybody’s control ”“ can create a perfect storm that some companies won’t be able to survive. In those instances, many are forced into bankruptcy and/or undergo corporate restructuring.
Virtual Data Rooms During Changing Markets
A virtual data room (VDR) is an online location where all the parties involved in the business proceeding, whether M&As, investments or bankruptcy and restructuring processes can store, search, share and edit (with the appropriate credentials, of course) the documents involved with the deal.
No matter if it’s a bankruptcy proceeding or any sort of corporate restructuring, a virtual data room (VDR) is an essential tool for any type of M&A activity. A sophisticated VDR allows all parties involved in these types of transactions. Managing the documentation of a foreclosure or bankruptcy utilizing a VDR helps all parties involved to save time, maintain document security, and save money and overall hassle.
Trusted VDR Partner
Having a trusted third-party VDR provider like CapLinked that utilizes all the appropriate tools for the transaction is mandatory for any M&A. The cost savings and time and energy saved from partnering with CapLinked, an industry leader in the VDR space, will certainly streamline the process. CapLinked’s VDRs include advanced management features, document collaboration controls, customizable permissions and much more. Start your free trial today!
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.
Wall Street Mojo – Bull Market vs Bear Market
Yardeni Research – Stock Market Briefing: Bear Market Indicators
Corporate Financial Institute(CPI) – Bull vs Bear