The stock market is a cyclical place that can range from incredible highs to incredible lows, but history shows that it always comes full circle and stabalizes before beginning the process again. Theses periods of growth and loss are defined as bull and bear markets. This article examines the questions: What is a bull market, what are the indicators of a bull market, and what is the economic impact of a bull market.
What is a Bull Market
Anytime there is a large consensus that a group of financial assets is rising or is going to rise you have a bull market. In the context of the stock market, there tends to be an increase level of positive thinking about the overall health of the economy, and that leads to an increase in investments. Essentially a bull market is when more people want to buy stocks then sell them. At a later time they expect to generate a significant profit by reselling the stock. Bull markets generally follow the recovery from a recession.
What are the indicators of a Bull Market
Bull and bear markets are largely influenced by the overall psychology of the market, so it’s never easy to predict when there is going to be an emergence of either trend, until the market is well into it’s path. However, there are some historical indicators that a bull market is beginning.
Economic indicators are one sign. When a countries Gross Domestic Product is up and consistently shows growth this is a good bull market sign. As well, a drop in unemployment, an increase in exports, and industrial production growth all point to the emergence of a bull market.
A stabilization in stock indexes shows confidence in the market and an increase in investor activity in a positive way. Rather than large variances, or continues losses over days and weeks, in a bull market, indexes like the S&P 500 or the Dow Jones Industrial Average will show minimal losses and an increase in gains.
Sector changes are another sign of a bull market. Historically, when people are being conservative in their investing habits in a bear market they are allocating their investments into guaranteed investments like bonds, and blue chip companies that have shown stable performance over large time periods. When a bull market emerges, sectors like finance and retail show larger investment activity, as investors are hoping to see a return on the profit that these companies are expected to make.
Economic Impact of a Bull Market
There is no direct economic impact from a bull market, in that a bull market doesn’t create any wealth, profit, or jobs. Rather, a bull market is an indicator that profits for companies are on the rise, job creation is increasing, and the overall health of the economy is on the upswing.
In an investor sense though, the economic impact of getting your investments in the early stages of a bull market will allow you to maximize your return by riding out the value of a bull market and selling when it reaches it’s peak.