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What is a Bull Market?

Definition: A bull market is when the financial markets experience rising stock prices for an extended period of time. Usually, in a bull market, stock prices rise by at least 15 percent, while 80 percent of all stock prices are on a rising spike

What Does Bull Market Mean?

What is the definition of bull market? The sustained increase in the market prices is the result of increased investor confidence. As investors trust the market, they massively buy more shares, thereby trusting the financial markets with their money. As the gains grow higher, investor confidence rises as well. Investor expectations about the economy also affect the stock market.

If investors trust their government, they invest their money in the stock market, causing the stock prices to rise. Furthermore, investors actively participate in a bull market by seeking to take advantage of market opportunities and earn a higher return relative to the risk they have accepted.

Letís look at an example.

Example

The characteristics of this aggressive and optimistic market vary at any given time period, but, overall a bull market occurs as a result of rising investor confidence. The investor sentiment plays a fundamental role in how investors perceive the economy and the market and what prospects they have. Rising investor confidence leads to gains in the major indexes, including the S&P 500, and the Dow Jones Industrial Average, causing a momentum in the market.

An example of a bull market is the market rally in the S&P BSE Sensex Index, the Bombay Stock Exchange Index, which grew 189.8% to 20,286.99 from 7,000 between 2007 and 2008.

The Sensex was at 3,377.28 in 2002, so it has sustained an increase of 500.7% over six years. During this period, there was an increased demand for the securities and investors with call options were expecting that the prices would continue to rise, thereby holding their shares. The rally led to a high price-to-earnings (P/E) ratios and profit margins for the firms that traded on the Sensex.

Summary Definition

Define Bull Market: A bull market occurs when stock prices continue to rise for a long time period due to investor confidence and willingness to invest increasing amounts of money in the financial markets.

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