What is the effect of a bull market on investor sentiment?

In a bull market, investor sentiment typically reflects increased confidence and optimism regarding the economy and financial markets. A bull market is characterized by rising stock prices and overall positive economic indicators, which tends to foster a sense of security among investors. This confidence often leads to increased buying activity as investors feel encouraged to take risks, expecting further price gains.

In such an environment, the positive performance of stocks reinforces investor beliefs that the market will continue to rise, which can create a self-fulfilling cycle of increased investments and higher prices. Consequently, this climate of optimism can lead to higher levels of consumer spending and investment in new projects, further energizing the economy. This explains why the correct choice is increased confidence and optimism.