What is a bull market?

Written by Anna Komashko
Written by
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2   min.
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bull market

Definition of the bull market

It usually creates the atmosphere of total confidence in perspectives and longtime stability of the financial situation, It’s the characteristic trait of such a phenomenon. Even through supervision and monitoring of the market doesn’t prevent it from sudden modifications. This fact is also verified by a lot of psychological consequences linked with markets.

Definite algorithm for recognizing a bull market still doesn’t exist. Despite this, this kind of market has one definite characteristic trait –20% increase of stock prices preceded by sudden 20% decrease. As the bull market is almost unpredictable, it is not subjected to prevention in advance. The key period for it in the new millennium was 2003-2007, when the decrease of S&P 500 was followed by sudden increase, which repeated again during the 2008 financial crisis.

Characteristic traits

Bull markets are often accompanied by a sustainable economy, which leads to the increase of gross domestic product (GDP) value, along with decrease of unemployment and expansion of corporate profits, accompanied by optimistic mood and confidence of participants, increase of popularity of stocks and the volume of IPO actions.

Difference between bull and bear markets

The antonym of a bull market is a bear market, including decrease of prices and worsening of mood and forecasts. These terms are supposed to be derived from the analogy with fight between such strong opponents as bull and bear. An endangered bull protects himself by directing horns up, while a bear does it by swiping paws downward, which reflect the direction of the market.

These kinds of markets are based on the economic cycle, including four stages: expansion, peak, contraction, and trough. Emergence of the bull market mainly means the beginning of economic expansion. As stock prices are the main indicator of general improvement, the market often shows an increase followed by local improvements, for example, gross domestic product (GDP)  increase. In a similar way, bear markets are often succeeded by worsening the economic situation.

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