- A bull market is when stocks steadily rise, usually during the expansion phase of the business cycle.
- Bull markets are usually accompanied by high investor confidence and a strong overall economy.
- Most investors should stick to their long-term strategy and goals rather then trying to time the market.
Wall Street investors use slang and jargon to describe the state of the stock market and the economy. A "bull market" is a popular term stock traders use to describe a long, extended period when stock prices rise and investors' outlook is optimistic.
Bull markets often coincide with increased consumer spending as unemployment declines and wages rise. Consumers tend to be more optimistic about the future and are more willing to spend as investors run with the bulls.
Regular retail investors can also benefit from bull markets by investing with one of the best stock trading apps, which offers extended market trading hours and fee-free trades.
Let's examine bull markets, how they differ from bear markets, and what they mean for institutional and individual investors.
Defining a bull market
"Bull markets happen when the economy is strengthening, and stock prices are rising," says Teresa J.W. Bailey, CFP and senior wealth strategist at Waddell & Associates.
Bull markets are defined as a period of rising prices and optimism over a continuous period of time.
Measuring bull markets
A bull market is characterized by a sustained increase in major market indexes like the S&P 500, Nasdaq, and Dow Jones. A rule of thumb that the stock market is experiencing a bull run is a 20% price increase from the market's most recent low. This rise usually coincides with signs that prices will continue to grow.
That said, bull markets can affect any asset class, including stocks, real estate, bonds, gold, and digital currencies like cryptocurrency.
Why is it called a bull market?
The term "bull market" is thought to have come from how a bull attacks, with the term "bear market" following the same line of thinking. Bulls buck their heads up, symbolizing how confident investors "charge" the market.
In contrast, bears swipe down on their prey.
Characteristics of a bull market
Bull markets are characterized by factors such as:
- High investor confidence: As asset values follow a steady, upward trend, market participants feel optimistic they will keep appreciating. In other words, investors grow more confident, which causes them to buy more, fueling additional gains.
- Rising prices: Money is easier to spend amid these improving conditions. Increased wages mean customers have more money to spend. After all, it feels like getting more will be relatively easy. This can, in turn, fuel inflation since all that excess money can increase the price of goods.
- Expanding businesses: Companies bet more on their future during bull markets. Buoyed by consumer buying, enterprises focus on expansion and invest in themselves.
- Declining unemployment rates: Unemployment rates frequently go down during bull markets. As companies expand, they hire more employees, decreasing unemployment. Average wages also 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.
Why do bull markets happen?
A bull market tends to occur when the economy strengthens from greater business investment and higher consumer spending. As people spend more on goods and services, businesses can generate more revenue, create jobs, and invest in new technologies.
If corporate earnings improve, investors may become more optimistic about business performance and, therefore, the broader economy. These investors may be more likely to invest in assets like stocks and real estate that benefit from improving business conditions.
The more the economy grows, the longer the bull market can run. However, as spending and production increase, the prices of goods and services can inflate. Too much inflation can hurt the economy.
Another factor that could coincide with the start of a bull market is policy changes. For example, if a new regime takes control of a country, it could enact legislative changes that are more favorable for businesses, therefore jumpstarting more robust economic growth and motivating investors to put their money into risk assets like stocks.
If a new regime reduces regulation or cuts taxes, it can help fuel stronger economic growth and greater investor confidence.
How to identify a bull market
You can identify a bull market based on:
- Sustained increase in stock prices: One clear indicator of a bull market is continued gains in the prices of assets that benefit from economic growth and strengthening business conditions, for example, stocks. When the cost of these securities keeps pushing higher, investors are frequently confident that this upside will continue, fueling additional purchases of these assets.
- High investor demand: Another clear indicator of a bull market is robust investor demand. When asset values follow a steady, upward trend, inventors tend to be optimistic about their future price direction, which motivates them to buy, as they expect to get a compelling return on their initial investment. This, of course, contributes to additional gains in asset values.
How long do bull markets last?
Bull markets last an average of 5.5 years, and the longest-lasting bull market occurred from 2009 to 2020. That said, no two bull markets are the same, and it's impossible to predict exactly when a bull market will end.
As the old saying goes, bull markets don't die of old age. They die when the market changes fundamentally, such as when prices rise too high or fast or some other event deflates investor confidence. Because it's impossible to tell when a market has reached its top from a ground-level perspective, it isn't easy to foresee the turning point before you are in it. Of course, that doesn't stop investors from trying.
"Markets move quickly," Bailey says."Historically, we've seen markets move as much as 9 or 10% in one day."
Historic bull markets
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 postwar years, the S&P 500 rose 267% over 86 months, leading to a commendable annualized return of 20%. On the home front, consumer goods purchased 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 stopped this bull's run, 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 coincided with dramatic growth in the real estate sector that 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 mortgage trading did extremely well until interest rates started to climb again. Subprime borrowers also began defaulting on their loans, leading to the subprime mortgage crisis.
The bull market ended in early October 2007 as stocks peaked, marking the start of a recession. 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 reaching a low of roughly 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 unemployment was at a 40-year low, 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? The global spread of the new Coronavirus brought widespread fears over economic and social damage, as businesses shuttered and millions of people were thrown out of work.
Are we in a bull market in 2024?
The US stock market has been on a bull run for approximately two years and shows few signs of slowing. The S&P 500 has increased over 63% over the last few years since its low point on October 12, 2022. During the final quarter of 2024, three major market indexes (Dow Jones, Nasdaq, and S&P) reached record closes.
The upcoming Trump presidency also boosted investor enthusiasm, causing the markets to soar in anticipation of promised tax cuts, business deregulation policies, a crypto-friendly agenda, and increased government spending. The value of the US dollar climbed roughly 1.5% after Trump won the November 2024 election.
However, not all market sectors are experiencing high wins. Internal stocks are declining in preparation for incoming tariffs on imports from Mexico, China, and Canada. Healthcare companies like Pfizer and Eli Lilly also experienced a mid-November slump.
In general, investors can expect more stock growth in their portfolios, especially for folks largely invested in tech stock powerhouses like Nvidia, Alphabet, and Amazon. Some experts believe the S&P 500 is expected to rise another 99% over the next four years. Not everyone is confident in this prediction, so diversifying your portfolio across multiple market sectors is key to mitigating risk.
Regardless, it's important to remember that the stock market is unpredictable. While history tells us that a bull market can last many years, there's no guarantee. Therefore, it's best to think long-term, thoroughly research potential investment opportunities, frequently rebalance your portfolio and diversify your asset allocation to match your goals.
Bull market FAQs
How long do bull markets last?
Bull markets last 5.5 years on average but can vary quite a bit. The longest bull market lasted 11 years, and the shortest lasted 25 days.
Can you predict a bull market?
You can't predict a bull market, but it tends to occur after a recession or downturn in the market. Signs that the market is on a bull run include optimistic investor sentiment, increased consumer spending, higher stock prices, and overall economic growth.
How should I invest during a bull market?
How you should invest during a bull market largely depends on your goals, risk tolerance, and time horizon. It's generally a good time to buy stocks, as they historically perform well during a bull run. However, advisors recommend against changing your investment strategy based on temporary market fluctuations. Instead, rebalance to ensure your portfolio is appropriately diversified.
Do bull markets end?
Yes, bull markets end. The end of a bull market is when the upward trend is followed by a bear market (a decline of at least 20%) or a correction (a 10% drop). Compared to bull markets, bear markets are often shorter.
Is a bull market a good time to buy stocks?
Bull markets are generally a good time to buy stocks. However, investors should examine the value of individual stocks they are considering instead of simply observing the broader market trend.
