We’ve all seen the statue of the raging bull on Wall Street, and the little girl that was placed ‘defiantly’ opposite it. For many of us outside the world of finance, the bull statue seemed like a fine example of high-finance machismo – but to insiders, the bull was symbolic of the kind of market they like.
Bitcoin has risen to astonishing heights this year. It started with a value of $900 dollars in January, and rose to the dizzying heights of $19,000 by the end of December 2017. However, although the percentile increase is astounding – the way Bitcoin’s behaving isn’t sostrange in our current market.
We’re currently in a bull market. Curious to know what this means, and how it’s going to affect you?
Keep on reading.
What is a Bull Market?
First, the basics. There are two types of financial markets: bull markets and bear markets.
In a bull market, prices for financial securities are rising, and are expected to rise further. Bull markets depend on investor optimism that strong returns aren’t going anywhere anytime soon – investor psychology plays a strong role in any market.
The opposite of a bull market is a bear market, which is when prices are declining, and are expected to decline further.
The stage you’re at in an economic cycle usually indicates what kind of market you’re going to be in. A bull market indicates market expansion; a bear market usually sits somewhere between the market peak and contraction. After that it’s the trough – like the financial crash of 2008.
We’re currently experiencing a bull market – and not just any bull market. The economic expansion has lasted over 120 months at the end of this month; making it the third longest bull market in history.
How Did We Get Here?
A strong bull follows a ferocious bear. After the dotcom boom reached its zenith in the late nighties, by the early noughties the market was in decline. This was a deep and dark bear market, which culminated in the financial crash of 2008.
It was in 2009 when prices of stocks started to rise again, and they’ve been rising ever since. The price of a share has increased, on average, 290% since ’09. So, although the increase in the value of bitcoin is stratospheric, it’s a la mode in that it’s behaving like other shares– admittedly, an extreme version.
It’s worth remembering, as our bull market approaches its ninth year, no bull market in history has survived its tenth birthday.
What Will Happen to the Market Next?
Calculating the age of a market is like calculating the age of a pet. Although this market has lasted eight human years, in market years it’s around 130 years – one old dog.
But don’t expect this old fella to go gentle into that good night. The historic fact of bull markets is, just before the decline begins, there’s a great firework display. Prices go sky high, higher than rational or reason – and then the market dies.
Most economists say that right now, they’re not so afraid of a recession. But there’s good reason to say it and believe it – while ignoring the evidence. Because markets rely on optimism to survive, investor optimism itself can hold back a shrinking market. But that kind of optimism can’t be sustained.
Markets have a way of correcting too much intensity, and with growth higher than expected this year, it seems we’re moving toward the high-price peak before volatility. Goldman Sachs predict only one more year of growth, before the market declines.
And what does that decline mean? Eventually, another financial crash.
The Bear to Come
After this bull, we’re heading for another bear. First the market will decline, and then there will be all the trappings of a recession.
Luckily, stock markets always decline before the impact of a recession is truly felt. Take some solace in that, if you keep your eye on the markets, you know what’s going to come before it arrives. That doesn’t necessarily mean the impact will be any less painful.
Recessions are characterized by unemployment rising, consumers having less money to spend, and businesses going bankrupt. How bad it isdepends on how the market was behaving before the shock hits.
Levels of volatility are good indicators of how bad an economic downturn is going to be. The more volatile, the worst the crash. Thankfully, current economic forecasts suggest that market volatility isn’t going to be anything like it was before the market crash of 2008, or the Great Depression.
However, economic forecasts are similar to their weather counterparts. It takes only one extreme event, and the best laid plans of men will turn to nothing but ash in their hands.
Although no one is expecting this downtown will be anything like the last, its seem like a good time to brace yourself – because we’re in for quite the ride.