Concept of bull market
A bull market refers to a bull market that has a duration of 3 to 6 years. These are periods characterized by optimism and investor confidence and expectations that strong results should continue. It is not easy to consistently determine at what point the market trend may change and follow a generalized downward trend, ie bear market. That difficulty is mainly due to psychological effects and speculation which play a significant role in changing these trends.
Bull and bear trends often coincide with the economic cycle, which consists of four phases: expansion, spike, contraction, and cava. The emergence of a bull market is thus an important indicator of economic expansion, as expectations about future economic conditions drive stock prices, the market often begins this upward trend before broader economic measures such as gross domestic product (GDP).
Characteristics of a bull market
The most prolific bull market in modern American history began at the end of the stagflation era in 1982 and completed during the dotcom bust in 2000. During this bull market the Dow Jones index gained an average of 16.8% a year. The NASDAQ technology index increased its value five times between 1995 and 2000, from 1,000 to over 5,000.
Therefore, this upward trend of the market is generally defined as a period in which investors show immense confidence. Although, technically, it can be said that there is only one bull market when there is an overall increase of at least 20% – as happened with the Nasdaq index in 1995-2000, during the technological boom.
Another indicator of the bull market trend and also of investor confidence is the increase in stock prices. On the other hand, assets of refuge, such as gold and government bonds, will lose their importance, meaning investors lose their appetite for these bonds and their demand falls. In addition, the volume of shares traded is larger, and even the number of companies seeking to exploit the stock market through IPOs (initial public offerings) increases.
Finally, other economic factors, such as consumer confidence, demand for natural resources and better employment data, play a key role in influencing investor confidence.
