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Bull market

Bull market is a financial term you should understand. Bankrate explains.

What is a bull market?

A bull market is a sustained increase in the prices of stocks or other assets over a given period of time. Prices for any asset — stocks, gold, bonds, abstract art — fluctuate constantly. When they appreciate rapidly over time, the condition can be called a bull market, while a sustained decline in prices is called a bear market. Unlike a bear market, which is generally considered to be a 20 percent loss from a peak that lasts for two months, there is no numerical measure for a bull market.

Deeper definition

Bull markets begin in an atmosphere of pessimism as a bear market is bottoming out. In the aftermath of a speculative bubble or a market crash, a self-sustaining reaction of selling investments to avoid losses drives prices to very low levels, drawing in new buyers looking to buy up underpriced assets.

What begins as a buyer’s market eventually builds up optimism and confidence in market characterized by rising prices. A positive feed-back loop ensures that rising prices inspires more confidence and greater expectations that prices will keep growing. Generally a bull market is accompanied by an economic expansion and strengthening GDP. Eventually, bull markets run out of steam and lay the groundwork for a new bear market

A speculative bubble is a related but separate phenomenon from a bull market. With a bubble, a single asset, commodity, or group of assets rapidly gain in price to a point that far outstrips the value of the asset. Bubbles are driven by exaggerated and unrealistic expectations of continued price gains. Gains pull in more investors who fear missing out on the opportunity to participate in the asset’s appreciation, driving further price increases, with buyers far outnumbering sellers. Once the buying stops, confidence rapidly evaporates and prices crash until the value of the asset returns to earth.

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Bull market example

The longest bull market seen in U.S. stock markets in recent history lasted from late 1990 until the dot com bubble of 2000. In the 113 months between October 1990 and March 2000, the S&P 500 rose 417 percent, with just one correction of more than 10 percent — the Asian currency crisis of 1998 — and two near corrections of 8.9 percent in early 1994 and 9.6 percent in early 1997. This period of sustained, durable stock gains was driven as adoption of computer technology and the internet transformed the business world and drove massive gains in the value of tech companies.

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