Bull Market: Stages and Influential Factors

Bull market phase lasts from up to months to years. Such a market is driven by the optimism and confidence of investors. Traders keep their expectations that the prices of securities and assets will see a price rise.Once this period is over, the correction phase takes over the market.

In this article, we will be learning all about bull market including its stages and factors influencing it.

Table of Contents

• What is bull market?
• Characteristics of a bull market
• Stages of bull market
• Factors driving bull market
• Risks associated

What is Bull Market?

The term bull market refers to the condition of the financial market when prices have either increased or are expected to rise. It does not consist of the normal days when prices of securities fall and rise. A bull market involves extended periods of long-term increase where the majority of security and assets‘ prices continuously increase. Below is a series of videos that will help you learn more about the bull market in detail.

Characteristics of a Bull Market

While there is no universal metric to identify a bull market, there are certain pointers that serve as indicators:

1. Increasing prices: Stock prices tend to increase steadily and continuously over time. This reflects the investor’s confidence in the market and economy.
2. High trading volumes: Such markets see high trading volumes as investors leverage rising prices which can bring new investment opportunities.
3. Strong economic growth: Bull markets bring in a strong probability of economic growth, as businesses expand and result in an increase in consumer spending.
4. Positive investor sentiment: Investors become more optimistic about future growth during the bull market trend about the future. This makes them more willing to take risks while investing capital.
5. Low-interest rates: When the interest rates are low, it becomes easier for businesses to borrow capital and invest for growth. This helps in driving up the stock prices.

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Stages

The bull market is a period in the market when prices consistently increase. During this period, the following stages occur: 

1. Accumulation phase: When the market appears to be at its lowest and the worst condition, at that moment, the accumulation phase comes. This comes amid the continuing pessimism when the expectation of things becoming even worse persists. During this phase of bull market stocks, there might be some volatility as investors weigh potential risks in investments.
2. Public participation phase: This is an important and second phase in the bull market. As this phase approaches, the overall sentiment among investors has turned positive. This promotes public participation in the stock market. As stock prices increase, investors’ confidence in the market also builds up. This makes more people attracted towards investment in stocks. 
3. Excess phase: This is the last phase of this market, where investors become overly optimistic about future prospects of the market. At this stage, investors tend to overvalue the stocks. The demand for stocks increases beyond their fundamental value which results in prices to be much higher than their intrinsic worth. At this stage, prices rapidly increase, and trading volumes are high. 

Factors Driving Bull Market

A bull market is a condition that arises in the market due to several factors. This may include economic condition, investor psychology and market trends. Let us now explore this in detail:

1. As businesses experience greater demand for goods and services, they start making profits. This leads to a better image of the company in the market. Due to this, the share price of the company also increases. When this happens with a number of companies, a bullish trend gets established.
2. With steady inflation, there is a sense of security amongst traders. Due to this, the market sees an upward trend, thus market experiences a bull phase.
3. A bull market is established when investors experience positive emotions about the growth of a company. During the bullish phase, investors have confidence the share price will rise. More number of traders start buying the stocks which ultimately leads to a bull market.
4. Government policies also influence the market. If the policies favour people to have more money, they are able to put more money in the stock market. This leads to a bull market. 
5. When interest rates are low, it is easier for businesses to borrow money and invest in the growth. This helps in driving up the stock prices. When the interest rates are low, it can make stocks more attractive to investors as compared to other types of investments.
6. Technological advancements drive innovation and growth in certain sectors. This leads to an increase in investments and higher stock prices.

Associated Risks

The bull market seems to be very lucrative as the prices keep on skyrocketing. However, there are certain challenges and risks associated with the market. 

• Complacency: The phase of this market may lead to the misconception that the market will continue to rise indefinitely. The lack of risk management from investors can cause significant in case the market reverts to its state before bull market.
• Overvaluation: Once the stock prices increase in this market, the risk that stocks may become overvalued also increases. This means that rising stock prices are no longer supported by underlying fundamentals. The market bubble will eventually burst thus resulting in a steep decline in the prices of stocks.
• Economic uncertainty: This market is associated with strong economic growth. However, it may still result in risk and uncertainties impacting the market. 

Do remember that the bull market is only a phase which is followed by a period of recession or market correction. It is not a sustainable phase and therefore, investors must stay informed on market trends and economic conditions driving market movements.