What is a Bull Market
The comparison of market trends to animal behaviour has a long history. The origin of the term ‘bull market’ can be traced back to the Dark Ages in the 1200s, when wealthy patrons would bet large amounts of money on animal baiting as a blood-sport, often featuring a bull. Thomas Mortimer first codified the term in his book “Every Man His Broker” in his book in the 18th century. That was then popularised by the cartoons of Thomas Nast about the slaughter of bulls in Harper’s Bazaar and by William Holbrook Beard for his painting of the 1873 stock market crash. Since then, the term has stuck as a metaphor for a positive market trend.
What is a bull market?
To determine what a bull market is, we must first understand the meaning of bullish in the stock market. The term bullish is derived from how a bull behaves when it is aggressive and on the attack. A bull swipes upwards with its horns when it attacks. Hence, the term bullish refers to the practice of aggressive investments in the market. A bull market refers to a time during which prices of stocks experience a steady rise, making investors confident and assertive in their investment in the market. A bull market can last for a long duration of time, typically for years. The most extended bull market period in recorded history lasted for 131 months, from 2009 to February 12, 2020, with a rise from 6.594.44 points to 29.551.42 points, an increase of 348%.
What are the characteristics of a bull market?
Now that we know the meaning of a bull market, we can move on to an overview of the general characteristics of a bull market, which include the following:
- A steady increase in price leads to extensive buying of stocks by investors who become convinced that the price rise will continue for longer.
- Companies pursue aggressive expansion and investment as they become confident in their stock portfolio, leading to a rise in competition and innovation.
- As companies and other large investors hire more people, unemployment rates go down.
- The average income rises due to economic growth, which fuels enormous spending, leading to further growth in the economy.
- The rise in spending and expansion can lead to inflation caused by excess.
Factors behind the formation of a bull market
There are two factors behind the formation of a bull market period. They are as follows:
- They are lowering interest rates and taxes across market sectors, generally by governments, as incentives for foreign and domestic investors to invest in the country’s economy, substantial public infrastructure projects.
- Higher return rates are caused by increased expansion and investment in the economy.
These two factors contribute to the general price increase across the stock market, creating a feedback loop known as a bubble. That leads to a bull market.
Most investors favour a bull market period because such periods provide more significant profit opportunities. With decreased risks associated with aggressive investments, as any loss can be recovered quickly during a bull market period, it creates added incentives for expansion. Shrewd investors can make exponential profits and expand their portfolio with much ease in these times. However, a bull market eventually peaks and falls, leading to a slight downward trend known as a correction or a rapid fall in stock market prices, called a bearish market.
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