- A bull market is an extended period when prices for stocks or other assets are steadily on the rise, usually during the expansion phase in the business cycle.
- Bull markets are usually accompanied by high investor confidence and a strong overall economy.
- Trying to time a bull market is harder than it looks, and most investors should stick to their long-term strategy and goals.
If you’re at all interested in the world of investing, you’ll notice the phrase “bull market” comes up a lot in common parlance. “The bulls were out today,” says some strategist on TV or Twitter, and once again you wish you knew exactly what they meant.
Let’s break down just what bull markets are, and what they mean for both institutional and individual investors.
What is a bull market?
A bull market, also known as a bull run, is a long, extended period in the market when overall stock prices are on the rise. There’s no formal metric that defines a bull market. But one common rule of thumb is a 20% stock price increase from the most recent low, with signs that prices will continue to grow.
The term is most often applied to the stock market, as measured by the major indexes: the S&P 500, the tech-heavy Nasdaq, and the Dow Jones Industrial Average. But bull markets can apply to any market, from individual stocks to other assets such as real estate, bonds, and currencies.
A bull market is the opposite of a bear market, which happens when stock prices fall 20% from their latest peak. The nomenclature makes it easy to remember the difference: When provoked, bulls charge and are known for running at great speed, and so they became a symbol for a surging stock market. In contrast, surly, defensive bears are associated with hibernating — hence, it became an ideal metaphor for a declining or sluggish stock market.
Key traits of a bull market
Though the two don’t always move in strict tandem, bull markets often reflect an “up” period in the general economy — specifically, the expansion phase of a business cycle, when GDP is increasing as well as consumer spending and industrial production.
The main characteristics of a bull market include:
- Increase in investor confidence: With stock prices increasing, investors are convinced they’ll keep doing so, so they keep buying. This further increases stock prices, due to supply and demand.
- Companies bet more on their future: Buoyed by consumer buying, businesses focus on expansion and invest in themselves.
- Unemployment rates go down: With companies expanding, they hire more employees, decreasing the unemployment rate. Average wages go up, as companies compete for workers. Workers are also more likely to look for a job since they have a better chance of finding one that pays them more than their current job.
- Money is easier to spend: Increased wages mean customers have more money to spend. After all, it feels like it will be relatively easy to get more.
- And that means risking excessive inflation: All that excess money can lead to an increase in the price of goods.
How long do bull markets last?
No two bull markets are the same, though according to Investech Research, the average bull market since 1932 lasts 3.8 years. Generally speaking, a bull market is considered over when stocks start a period of steady decline, falling at least 20% from their peak.
As the old saying goes, bull markets don’t die of old age. They die when the market has changed fundamentally, when prices have risen too high or too fast, or when some other event deflates investor confidence in the market.
Because it’s impossible to tell when a market has reached its top from a ground-level perspective, it’s very difficult to foresee the turning point before you are in it. The length of any given bull market is informed by the factors of its time — a concept made clear if you take a moment to examine some of the biggest bull markets in history:
Post-World War II Rally: June 1949 to August 1956
In these prime post-war years, the S&P 500 rose 267% over 86 months, which works out to a commendable annualized return of 20%. On the home front, consumer goods to fuel the Baby Boom were the main driver, while a strong export market also helped companies grow. The Federal Reserve raising interest rates and international tension brought this bull’s run to a stop, beginning a bear market phase. However, the market was back in bull territory by 1957.
The Housing Boom: October 2002 to October 2007
The Housing Bubble — a dramatic growth in the real estate sector — began after the federal government deeply cut interest rates in hopes of encouraging investment. The financial institutions that encouraged home financing, real estate investing, and trading in mortgages did extremely well — until interest rates started to climb again, and subprime borrowers started to default on their loans, leading to the subprime mortgage crisis. The bull market ended in early October 2007 as stocks hit their peak, marking the start of a
. A bear market arrived the following summer.
The Longest Bull Run in History: March 2009 to March 2020
This record-breaking bull market lasted 131.4 months (nearly 11 years), making it the longest in history. After taking a beating during the Great Recession (2007 to 2009), the S&P 500 gained over 400% after a low of 666 points on March 6, 2009. On February 12, 2020, the Dow Jones Industrial Average reached a record high of 29,551 points. The gains for the S&P alone amounted to over $18 trillion on paper, and during the period unemployment was at a 40-year low, at under 4%.
But just a month later, on March 11, the Dow lost over 20% of its value, falling to under 19,000. The S&P 500 and the Nasdaq were pounded soon after. The most obvious cause? Widespread fears over economic and social damage brought by the global spread of the new Coronavirus, as businesses shuttered and millions of people were thrown out of work.
3 tips on investing in a bull market
Wondering how prudent investors act in a bull market? Here are some tips:
1. Don’t try to time the market.
It’s almost impossible to tell when the market is at its peak, and even professionals rarely manage to call it right. Not only is it possible that you sell too late — but you might also end up selling way too early, missing out on future profits. Better to enter and leave the market gradually, without drama — or according to your own preset benchmarks — rather than selling all at once because you’re convinced the market has reached its top. If you follow a buying strategy like dollar-cost averaging, stick to it.
2. Stay diversified.
It can be tempting to go all-in on a hot stock or sector when the market has been growing, but the end may be closer than you think. If you’ve only bought the biggest so-called winners, you may find that their pumped-up prices evaporate the quickest. A super-strong bull market can make even weak companies appear like sure things — until they aren’t. Be sure you know what it means to diversify effectively, and keep in mind that knee-jerk reactions to news about individual stocks or companies isn’t the best way to figure out where to invest.
3. Pay attention to the all-mighty consumer.
Companies that sell products directly to consumers (as opposed to industrials) have proven themselves over decades. Bull markets in recent years have tended to be powered by such companies, but more importantly, they may be a decent safe harbor during downturns as well. Consider investing in these equities, or in a large-cap mutual fund with such stalwarts.
The bottom line
It’s impossible to predict exactly when a bull market will end. But it always does, after an external force affects investors’ feelings about the future and stock prices start to look too pricey.
Despite the inevitable dips, over an extended time horizon, the stock market has never failed to rise. So not being invested in the market means missing out over the long haul. Like a savvy matador, individual investors should keep an eye on the bull’s moves, and adjust accordingly — but always stay focused on their overall strategy and goals.
Real Life. Real News. Real Action
Zillion Things Mobile!Read More-Visit US
John Rambow is a freelance writer, editor, and community manager. He’s written for publications that include Budget Travel, Fox News, Fodor’s, and New York and BlackBook magazines. He’s edited for Fodor’s and Moon guides, and also helped copyedit the website of one of the largest law firms in the world. He was previously an executive editor at Budget Travel, where he oversaw its website’s homepage as well as its blog, e-newsletter, and all web-only content. Previously he was the editor for Gridskipper, Gawker Media’s travel blog. During a two-year stint in India, he updated portions of the Fodor’s guide to India and blogged for Jaunted as well as Gridskipper. As an in-house editor at Fodor’s, he created and was the editor of its blog — one of the first to be devoted to travel news. Xeni Jardin of Boing Boing called it “kickass.”
Paul Kim is a Personal Finance fellow at Insider where he writes explainers and how tos that help readers understand how to better manage their money. A recent NYU graduate, Paul has spent the majority of his journalism career at his student-run newspaper Washington Square News, where he wore a number of hats. Most recently, he helped rebuild the newspaper in the spring of 2021 as its managing editor after nearly all the staff resigned the previous semester over issues of editorial independence.When he’s not writing, Paul loves cooking and eating. He hates cilantro.
Direct tips to email@example.com and family recipes to @PaulKimWrites on Twitter.
Subscribe to the newsletter news
We hate SPAM and promise to keep your email address safe