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When assets continuously rise during a bull market, nothing is more rewarding for investors.
But what causes bull markets? And how do you invest during one?
In this article we’re going to take a look at bull markets, identify a major sector that is currently in a bull run, and take a look at how investors should behave when stock prices are rising.
Scroll down for all the details, or click on a link below to jump straight to a specific section…
Of course, when stock prices go up, you cannot guarantee that stock prices will continue rising.
This is why any investor chasing ‘easy’ profits should be aware of ‘bull traps’.
A bull trap is where investors believe the stock market will continue to rise, only for the opposite to happen following a quick change of sentiment.
For example, investors could fall for a bull trap if they decide to buy stocks in a perceived ‘bull market’ once stocks dip slightly. That’s because many investors consider these ‘dips’ as a great buying opportunity (see our article that explains the pitfalls of buying the dip).
However, when the expected resume in rising prices fails to materialise, this can cause investors to quickly selloff their assets, fueling a sentiment of falling prices.
It’s fair to say that 2023 has served up a few surprises for investors. Here a quick overview of how popular shares indices have performed this year (at the time of writing on Friday 17 November), both in the UK and further afield…
Now we’ve compared the performance of major stock market indices this year, let’s take a look one standout sector currently in a bull market: Tech.
2023 has been the year of tech, with the industry absolutely coining it in this year. The ‘Magnificent Seven’ – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – have all enjoyed huge double-digit gains in 2023.
Of the above tech giants, Nvidia leads the way. It’s share price is up a colossal 245% since January. Whoa!
Many analysts suggest the current tech bull market is being fueled by the rise of artificial intelligence – this is certainty the case for Nvidia, which is the world’s leading AI chip manufacturer.
Let’s be honest, no one really knows how long any bull run will continue for.
Yes, it’s certainly possible that the current tech bull run will continue throughout 2024 and beyond. Likewise, it’s also possible that the run will grind to a halt for one reason or another – think chip-shortages, a global recession, slowing consumer demand etc…
Remember, everyone can be an expert with the benefit of hindsight!
Yet if you do believe the current tech bull run will continue, then you certainly aren’t alone. According to investing analyst Dan Ives, the industry is set to continue its bull market rally next year. He explains: “Wall Street expectations are too low ahead of the ‘tidal wave’ of spending on artificial intelligence and cloud computing that’s just around the corner”
Ives goes on to suggest that investors looking to cash in on the current tech boom should make an effort to diversify their holdings. He explains: “Avoid focusing on a single industry within the sector. Technology sector stocks range from semiconductors and solar to software applications and software infrastructure. Consider a mix to diversify your portfolio within the sector.”
For more on why it’s good to mix things up when it comes to investing, see our article that explains the importance of holding a diversified portfolio.
While it may be tempting to follow the crowd and purchase stocks during a bull market run, it’s important to consider that it’s very difficult, if not impossible, to accurately determine when a bull market will end.
With this in mind you may be better off foregoing the temptation of trying to predict the direction of a market in order to earn a quick buck. Instead you may wish to focus on a well thought out investment strategy, particularly one that aligns with your investing goals and tolerance for risk.
Also, try to invest for the long run if you can. That way, you’ll less likely to crystallise big losses should a bull run suddenly turn bearish.
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Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.
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