The Bull Market and the Domino Effect It Creates on a Nation


March 11, 2021 | AtoZ Markets – In a broad or single market, a bull market is happening when there is a rise in prices. It is the exact opposite of the bear market, where the prices massively decline. There is also an expectation by investors that the price rise is going to be continuous, so they will most likely purchase. In short, a bull market is generally when the economy portrays strength.

There is no exact measurement for the bull market, but usually, there is a 20% rise in the stock market after a 20% decrease and the second drop of 20%. There is also no exact way to predict these occurrences until they happen.

Effects of high investor confidence

There is a term called self-fulfilling prophecy or high investor confidence, where investors believe that prices will increase continuously. Because of that, they will continue to invest. The investors themselves cause the rise in prices. Now, we can see the reflected laws of supply and demand. It only goes to show that psychological factors can significantly impact the behavior of the stock market.

When there is a bull market, there is somehow a domino effect that will also impact other sectors that matter. As investor confidence rises, business confidence increases as well as they expand and grow. High investor confidence means lower unemployment rates and higher wages. There will be a rise in corporate profits, gross domestic product, and IPO activity.

Did you know?

How did the bull market end up having such a name? The bull market is like the bear market’s twin. When someone mentions one of them, the other one will surely be present somehow. We are not sure which story is right about the term’s origin, but some theories can shed light on why a bull market name is a way it is today.

Sometime in the 18th century, hunters would sell bearskins before they even hunt bears. They did not possess the bearskins yet, but they are already selling and marketing them. This connection was a metaphor for short-selling.
In the 19th century, artists like cartoonist Thomas Nast and painter William Holbrook Beard made art using the bear and bull symbolism. These acts helped sensationalize the terms, and the rest was history.

Tips on investing

Let’s scan through some strategies to use when there is a bull market.

  • Buy and hold. If an investor is confident of a particular security’s future pricing, he will buy it, hold onto it, and potentially sell it later.
  • Increased buy and hold. It is a variation of buy and hold, where the investor continuously adds his holdings while the prices are increasing.
  • Retracement Additions. It is not uncommon for a bull market to have small dips. Some investors wait for these retracements and purchase them with expectations that the price will go back up soon since it’s a bull market. It is like buying at a discount.
  • Full swing trading. It attempts to capitalize using techniques like short-selling and others to attain the highest gains when a bull market becomes more prominent.

The great recession recovery

The longest bull market in US history is the great recession recovery that started in March 2009 and is still ongoing up to this date. It doesn’t matter when it ends; it will always be the longest in America’s history for lasting more than a decade. The process is a combination of slow and steady growth in the economy.

This market has survived a massive recession that merely put it into existence. However, technology such as Apple, Amazon, and the Google Microsoft merger helped them gain back investor confidence.

Source: https://www.investopedia.com/terms/b/bullmarket.asp

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