Stock markets move up and down in recurring cycles. A prolonged rise in stock prices is known as a bull run while a consistent decline is called a bear market. These are different from short-lived upward or downward “corrections” in stock prices. Typically, a bull run or a bear market means at least a 20% change in the index value. Nobody can accurately predict stock market movements, but they can be explained. Here’s what moves the stock markets.
Bullishness in the markets can be the result of an economic boom which in turn fuels optimism among investors. The Indian markets witnessed the longest bull run during the past five years (see graph below), a period during which the BSE Sensex gave a spectacular annualised return of almost 47%.
Indicators of a Bull Run
• Rising corporate earnings
• Low inflation
• Low interest rates
• High fund flows and liquidity
• Increased investor interest
Sensex peak: 20873
Sensex low: 3012
Rise: 592%
BEAR PHASES
Bear phases occur in times of an economic downturn and when there is all-round pessimism. Unlike a correction, a bear market is marked by a consistent fall in stock prices over a long period of time. The Indian markets could slip into a bear phase. Since the beginning of this year, the Sensex has lost almost 50%.
Indicators of a Bear Phase
• Falling corporate earnings
• Rising inflation
High or rising interest rates
• High fund outflows and liquidity crunch
• Low investor interest
Bear market: 14 Feb 2000 to 24 Sep 2001
Sensex peak: 6151
Sensex low: 2627
Decline: 57%
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