Factors That Could Turn the Market, Essay Example

A bear market is a decline over a sustained time. It reflects investor pessimism. A bull market is the opposite: a sustained rise in the market reflecting investor confidence. Factors that could lead to a reversal of the current bear market include an increase in investor confidence, increased rates of investment, and decreased market volatility. Surprisingly, the economy is not an indicator of the market trend; the market usually rallies several months before an economic upturn.

Raising investor confidence is not easy. The scandals of recent years mean that investors are not just worried about the market, but also about the people with whom they invest their money. Regardless of political arguments, it does appear that government promises of stricter regulation of offending sectors have reassured potential investors. They are also influenced by earnings reports that have begun to return to the positive side.

Increased investor confidence will lead to a gradual increase in rates of investment. As people invest tentatively at first, assuming the market bottom really has passed, they will continue to increase their activity.

Decreased market volatility will bolster these trends. Even though day-to-day numbers may go up and down, if these changes are small, they will not frighten investors. Recent CBOE Volatility Indices are in the low 20s, which is very good.