What It Is:
A bull market is a period of several months or years during which asset prices consistently rise. The term is usually used in reference to the , but it can describe specific sectors such as real , bonds or foreign exchange. It is the opposite of a , in which securities prices consistently fall.
How It Works/Example:
Identifying and measuring bull markets is both art and science.
One common measure says that a bull market exists when at least 80% of all stock prices rise over an extended period. Another measure says that a bull market exists if market indices rise at least +15%. Of course, different market sectors may experience bull markets at different times.
The causes and characteristics of bull markets vary, but most financial theorists agree that both economic cycles and investor sentiment both play a role in the creation and momentum of bull markets. In general, a strong or strengthening economy, indicated by high employment, high disposable income and high business profits usually ushers in a bull market.
Rising investor confidence also indicates a bull market and is perhaps more powerful than any economic indicator. When investors believe something is going to happen (a bull market, for example), their actions can turn it into a self-fulfilling prophecy. Although difficult to quantify, investor sentiment can show up in mathematical measurements like the put/call ratio, the advance/decline line, IPO activity and the amount of outstanding margin debt.
Why It Matters:
Regardless of their exact beginnings and ends, bull markets typically have four phases.
In the first phase, prices are low, investor sentiment is low, and investors are pessimistic about future prices. In the second phase, earnings begin to increase and economic indicators are above average. Investor sentiment also gets more optimistic.prices, trading activity and corporate
In the third phase, dividend yields reach historic lows. In the fourth and final phase, there is excessive activity, trading activity and speculation. P/E ratios are also at historic highs. As investors take profits or react to bad news or negative indicators, bull markets generally unravel.indexes and many securities reach new trading highs. Trading activity continues to increase, and
Bull markets usually present a multitude of moneymaking opportunities for investors because prices generally rise across the board. But bull markets don't last forever and they don't always give advance notice of their arrival, so the investor must know when to buy and when to sell to maximize his or her profits. This means the investor must attempt to time the bull has begun and when it is ending.
Analysts spend thousands of hours trying to determine what trigger the next bull and how long it last. Technical analysis is especially prevalent in this effort, although less sophisticated indicators such as hemline fashions or the NFL division of the last Super Bowl winner also provide fodder for such predictions.
For details on the history of the words that describe The Quirky And Brutal Origins Of The Terms 'Bear' And 'Bull.'trends, read