Bull market


A bull market coincides with an upturn in the stock market. Its definition is based on a rise in stock prices after two 20% declines of the market, measured on the basis of specific broad market indices, such as the Dow Jones Industrial Average. There is low unemployment, and the economy is in a positive state in terms of key performance measures. 

What is a bull market?

A bull market is the opposite of a bear market. When a broad market index such as the Russell 3000 increases by 20% or more and this generally continues for several months, this is known as a bull market. There is a positive market sentiment coupled with rising stock prices. Trading activity increases as investors start buying stock to take advantage of the chance for capital gains. 

A market that experiences a sustained upward swing is a bull market. Its extensions are higher than typical highs and its pullbacks are higher lows. It applies to the full gamut of instruments and assets measured by the broad market index. Multiple time frames can be used to determine if an uptrend is a bull market, ranging from mere days to months.

How long do they typically last?

Bull markets typically last for an average of 9.6 months. Over the course of a bull market there will be an average gain of 112%.

How do I identify a bull market in the stock market?

The standard definition in the stock market is when two declines in a broad market index of at least 20% have occurred. This is followed by a rise in stock prices of 20% or more. One identifying factor is a low or decreasing unemployment rate. As most people are earning an income, their aggregated ability to spend increases, bringing bigger profits for corporates. 

Positive sentiment exists in the stock market. The economy undergoes growth and key economic indicators, such as international trade, investment, consumption, and gross domestic product (GDP) are healthy. The economy is stable in terms of the balance of payments, supply of money, prices, and central government budgets. Investors display a greater propensity for taking risks in the market.

What are the potential risks and challenges of investing in this type of market?

Investors become overconfident, and thus have a greater risk propensity during a bull market. Investors respond to the slightest positive news by buying stock, which increases stock prices. Rising prices become a trend. With a bigger appetite for risk than in other markets, speculative investments are common and can wipe out an investor. 

What are the key factors that drive a bull market?

A bull market occurs when economic factors are positive or strengthening. It goes hand-in-hand with lowered unemployment rates, increasing profits for corporates, and a healthy gross domestic product (GDP). There are more opportunities for employment that leads to higher spending. There is an increase in the number of investments being made. The distance between a bull market and a bear market is small; one readily gives way to the other and this can happen in a matter of seconds. 

There are many factors that can contribute to a bull (upwards trend) or bear economy (downwards trend) arising. Political stability at the national and international levels can affect the market. Investors base their decisions on what is happening in the world. International trade is doing well, the balance of payments is healthy, and there is not a money shortage.

Investors must adapt their investment strategies for minimum risk and maximum gain to match market conditions.