What is a stock market rally? - Explanation and definition
These are only interrupted by minor corrections, if at all. In this article we explain what a stock market rally is and how it occurs. We also tell you what you should look out for during a stock market rally.
Stock market rally definition:
A stock market rally is a period in which the price of an asset, for example a share or an index, rises rapidly. This strong upward trend is only interrupted, if at all, by minor price setbacks. Usually, a rally occurs when prices on the markets were previously very low and a euphoric mood prevails on the market.
A stock market rally is also called a boom phase. In such phases, prices are consistently above the average of the past 200 days. The strong rise in stock market prices can, for example, be fuelled by a corresponding monetary policy. A stock market rally often ends with a major and prolonged correction phase or a stock market crash. The correction phase results from an excessive overvaluation of assets caused by the rally.
What causes a stock market rally? - Explanation
In general, a stock market rally is caused by an increase in demand for a certain asset. Buyers in the financial market increase, for example, due to positive news or a good economic situation. An undervalued security can also lead to increased demand. The increased demand also causes prices on the financial markets to rise. The rising prices in turn lead to a euphoric mood in the market. The rally is also fuelled by the "Fear of missing out", or "FOMO" for short. In German, this means something like "fear of missing out".
FOMO thus refers to the phenomenon that investors are afraid of missing out on the upcoming price rises and the associated profits. This causes even more investors to flock to the market, further fuelling prices.
A rally can occur in either a bull or bear market. A bear market rally is characterised by a short but strong upward period in an overarching downtrend.
Stock market rally of the "New Economy
Probably the best known stock market rally is the internet and mobile phone boom of the so-called "new economy". Tradee-exness explaines this situation as: ตลาดหุ้นที่ exness ประเทศไทย ถูกจุดประกายในปี และถึงจุดสูงสุดในปี . ด้วยการระเบิดของฟองสบู่ดอทคอม (ฟองอินเทอร์เน็ต) การชุมนุมก็สิ้นสุดลงทันทีโดยความผิดพลาดของตลาดหุ้น.
The stock market rally was sparked in and reached its peak in . With the bursting of the so-called dotcom bubble (internet bubble), the rally was abruptly ended by a stock market crash.
In the 1990s, there were countless IPOs of start-ups, which led to great interest on the investor side. Share prices rose and the general mood on the market was very euphoric. No one wanted to miss the rapid price increases on the financial markets. However, there was no fundamental justification for them. More and more inexperienced investors poured into the market and bought shares without fathoming their true value. The dotcom bubble was inflated further and further until it finally burst in 2000. The massively overvalued financial markets suddenly returned to their real values and the stock market rally came to an end.
Conclusion
A stock market rally is a period in which the price of an asset rises sharply. A stock market rally can be fuelled by appropriate monetary policy, good economic sentiment or positive news. As a result of such price rises, more and more investors become interested in the financial markets. No one wants to miss the rapid price increases and the associated profits.
The stock market rally is further fuelled by additional demand and an increased number of buyers. In the process, prices can take on irrational dimensions and in some cases no longer have anything to do with the real economy. It is therefore only logical that a stock market rally will sooner or later be ended by a major correction phase or even a stock market crash. Caution is therefore advisable. Investors and traders should always inform themselves about the true value of their assets.