What is a bull market? Definition and key indicators

A bull market occurs when asset prices rise significantly for an extended period. While analysts often use the term “bull market” to discuss stocks and the stock market, the term can be used for any asset (bonds, real estate, commodities, or even cryptocurrency) that is rising over time. Some analysts call a bull market one that has risen 20% since its most recent low.

Markets tend to go through boom and bust periods known as bull markets and bear markets respectively. The length of a bull market can vary greatly, with some lasting only a few months, while others can last for years. Here’s what a bull market is and how it works.

A bull market is a period of rising prices, especially one in which the rise is sustained over time, often with a stock or other asset repeatedly making new highs. A bull market can refer to the price action on an individual stock or for a specific market as a whole. For example, experts might discuss a bull market for Apple stock or for benchmark indices such as the Standard & Poor’s 500 or the Dow Jones Industrial Average, both of which are collections of stocks.

A bull market often signals the end of a bear market, a period of falling prices, although the turn to a bull market can only be judged in retrospect, when the change is evident. The market can meander sideways for a long time before it finally decides to go higher and become a bull market.

Bull markets typically occur with a growing economy, as rising corporate profits translate into rising stock prices. Higher profits and the expectation of even higher profits can fuel investors’ expectations, causing them to raise asset prices as long as the future looks bright.

Bull markets often end with asset prices surging so fast and furious that they end up in a bubble, with prices out of touch with fundamentals. Asset prices can then fall as part of a market crash, a sudden period of a few days in which prices fall rapidly. The crash can lead to a stronger downturn and ultimately a sustained downturn in a bear market.

Bull market example

The stock market has experienced many bull markets over the years. For example, stocks entered a bull market in March 2009, during the Great Recession, and lasted until COVID-19 effectively shut down the world economy in March 2020. Then, with the help of massive stimulus fiscal and monetary, a new bull market has emerged. . This second bull market for stocks lasted until December 2021, when the S&P 500 peaked, and then turned into a bear market.

While each bull market can be driven by different factors, they tend to have similar traits:

  • Significant price growth: The most distinguishing feature of bull markets is the sustained growth in asset prices, with a single asset or index repeatedly making new highs over a period of time.
  • High investor confidence: Investors usually feel good when the market is good. This means they are more enthusiastic about investing and may even consider more speculative or risky investments. These “animal spirits” push asset prices further up.
  • Low unemployment rate: Bull markets are often marked by falling or low unemployment, and as people have money to spend, corporate profits increase.
  • Growing economy: Bull markets also tend to coincide with periods when the economy is growing, including positive signals among the leading economic indicators. Often a bull market will kick off before an economy is fully out of recession and end before it is clear the market is entering a recession or another recession.

In many ways, bull markets and bear markets are opposites. While there are some exceptions, trends tend to move in the opposite direction in every scenario. Here’s how the two markets compare:

rising market bear market
performance Asset prices are steadily climbing to new highs Stock market down 20 percent from recent high
Economic indicators
  • Expanding GDP
  • Increased investor confidence
  • Decrease in unemployment
  • GDP in decline
  • Declining investor confidence
  • Unemployment on the rise
Average duration* 5.3 years (since 1943) 12 months (since 1946)
Frequency* 6.1 years (since 1943) 5.8 years (since 1946)
Average yield* 169.5 percent (for the bull market between 1943 and 2021) -33.6% (for bear markets between 1945 and 2021)

*Source: Yardeni Research

Here’s how to invest in bull and bear markets.

Bull markets are hard to predict, and analysts usually only recognize them after they happen. As a result, it tends to be difficult to be a trader in bull markets, and instead it makes sense for investors to think and invest for the long term rather than trying to trade in and out.

For most investors, it’s best to develop a long-term strategy and stick to it regardless of market conditions. For example, you could invest the same amount at regular intervals, using the popular investment strategy called dollar-cost averaging. Because you always invest regardless of market conditions, you will sometimes buy at relatively cheaper prices.

Here are some investment tips to consider in up markets, although they work well in down markets too:

  1. Develop a long-term strategy and then stick to it. Determine which investment strategy works for you and stick to it. If you’re looking for minimal effort and solid returns, buying an S&P 500 index fund and holding it for years has worked out great for many investors. But if you try to actively swap it, chances are you will noticeably underperform.
  2. Tailor your strategy to meet your needs over time. As you get closer to retirement, you’ll be less able to weather periods of poor market performance, because you’ll need to start leveraging your money. So it can make sense to de-risk your portfolio over time.
  3. Invest in low cost index funds. Low-fee index funds have several advantages, the biggest of which are low fees and easy diversification. But if you buy and keep them, you can avoid expensive fees, and the best index funds offer attractive returns.

Bottom line

A bull market is a period of significant growth, and major stock indices are usually used to measure bull markets, but the term can also refer to the growth of individual stocks. Bull markets tend to last longer than bear markets and provide returns that more than make up for losses in bear markets. Therefore, most investors should stick to a long-term investment strategy and avoid trying to outrun the market as a short-term trader or risk significantly underperforming.

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