WHAT IS BEHIND BULL AND BEAR MARKETS?

What causes bull and bear markets? They are partly a result of the supply and demand for securities. Investor psychology, government involvement aimed at prodding or suppressing economic activity, and changes in economic activity also drive the market up or down. These forces combine to make investors bid higher and higher (or lower and lower) prices for stocks.

To qualify as a bull or bear market, a market must have been moving in its current direction (by about 20 percent of its value) for a sustained period. Small short-term movements lasting days do not qualify; they may only indicate corrections or short-lived movements. Bulls and bears signify long movements of significant proportion.

There are several well-known bulls and bears in American history. The longest-lived bull market in U.S. history is the one that began about 1991 and ran into 2000. Other major bulls occurred in the 1920s, the late 1960s, and the mid-1980s. However, they all ended in recessions or market crashes.

The best-known bear market in the U.S. was, of course, the Great Depression. The Dow Jones Industrial Average lost roughly 90 percent of its value during the first three years of this period. There were also numerous others throughout the twentieth century, including those of 1973–74 and 1981–82.

Can these big movements in the market be predicted with any accuracy? On the next screen, you will find out.