What Is a Boom?
A boom refers to a period of increased commercial activity within either a business, market, industry, or economy as a whole. For an individual company, a boom means rapid and significant sales growth, while a boom for a country is marked by significant GDP growth. In the stock market, booms are associated with bull markets, whereas busts are associated with bear markets.
Booms are often medium- to long-term periods of economic or market growth and may eventually turn into a bubble. A bubble is when the boom extends far beyond the fundamental growth trend in value where buyers become irrationally exuberant.
How a Boom Works
Stocks that suddenly become very popular and gain strong, elevated market profits are the result of a stock boom. An example of this is the internet technologies boom or "dot-com bubble" that occurred during the late 1990s. This was one of the most famous booms in stock market history.
A company or industry boom results in an increase in output, jobs, and investment in that industry. Certain events can be citywide or nationwide booms for business activity, such as hosting the Olympics, which translates into capital investment, TV broadcasting deals, sponsorship deals, and tourism.
On a more aggregate level, a boom is indicated by increasing output and income, employment, prices, profit, and interest rates. Economic observers break aggregate U.S. data down state by state in order to see the amount that each state contributes to variables such as real GDP per capita and real GDP growth per capita.
The cyclical nature of the economy and markets generally mean that periods of high-growth booms are followed by low-growth busts.
A downturn in a particular industry or financial sector can result in a bust for an entire city or state, especially if the region has invested too heavily in that industry or sector. Arizona and Nevada became mired in an economic slump because they were hit hardest by the real estate bust and resulting mortgage crisis of 2007.
If a boom extends beyond its reasonable life, or if prices extend far above the boom's initial trend line, a bubble may form that has the potential to pop and thus turn a boom into a subsequent bust. Several such instances have occurred throughout the globe over the course of history, from the Dutch Tulipmania of the 17th century to the Great Recession of 2008.
One example of a boom that eventually turned into an asset bubble was the bull stock market of the mid-1990s that became the tech bubble that popped in 2001. Another was the boom in housing prices throughout the early 2000s that turned into the real estate bubble of 2008-09. From 2010 through 2018, global equities markets experienced a long-term boom.
- A boom illustrates a period of elevated or increased growth within a business, market, industry, or economy.
- A boom lasts over the medium- to long-term and can turn into a bubble, ultimately leading to a bust.
- Booms are often considered bull markets in the stock market, while busts are considered bear markets.