You would have been hearing a lot of talk about the 'ASX 200 bear market' lately – as well as likely adjacent talk of the bull market ending.
These can be confusing terms with a lot of loaded meanings. And more confusion is not something ASX investors really need right now in my opinion.
So let's go over the meanings of these two zoological metaphors and what they really mean for ASX investors.
What does 'bull market' and 'bear market' mean?
In simple terms, a 'bull market' refers to a period where stocks are going up, and a 'bear market' refers to a period where stocks are going down.
I understand the terms hail from how bulls and bears attack their foes (bulls thrusting up with horns, bears swiping down with claws). These terms are also used interchangeably to describe if someone is optimistic or pessimistic on a particular stock or trend. For example, 'I'm bullish on CSL Limited (ASX: CSL)' means I think CSL shares will perform well in the future.
Until February, we had been in a years-long bull market, but currently, we are in a bear market sparked by the outbreak of the coronavirus.
Technically, the end of a bull market (and the subsequent start of a bear market) is marked when the S&P/ASX 200 Index (ASX: XJO) falls more than 20% from its most recent high watermark. Conversely, a bear market ends when stocks rise more than 20% from their most recent low.
Now bear markets are far less common than bull markets and also tend to last less time. But they are more violent, more volatile and elicit far more media coverage and emotionally-charged buying and selling (usually selling). There's an old saying which goes, 'bulls take the stairs up, but bears take the elevator down' that describes this phenomenon.
Does this matter for ASX investors?
It's always nice having metaphors like 'bull/bear market' to help build a narrative around when following the stock market. But in reality, whether we are in a bull or bear market doesn't really lend much value to everyday ASX investors beyond describing what's likely happened to a typical portfolio in recent weeks.
The only thing that matters to me, for example, is whether my favourite ASX companies are on sale. If they are, I might be interested in buying some. If not, I'm happy to sit and wait. I did a lot of waiting last year and have done a lot of buying in recent weeks. That just happened to correspond to a bull market for the former and a bear market for the latter.
Foolish takeaway
So I hope I have provided some clarity on what a bull and bear market is. In the end, they are descriptive terms with little real consequence. But it does pay to know what they are, all the same!
