Bull Market Definition: Characteristics & Examples

What is a bull market?

A bull market, sometimes known as a bull run, is a period in which stock values rise over a protracted period of time. There is no single metric or statistic that determines when we are in a bull market, but one typical rule of thumb is that stock prices have increased by at least 20% from their most recent low, with evidence of continued growth. The stock market, as measured by the major indexes: the S&P 500, the tech-heavy Nasdaq, and the Dow Jones Industrial Average, is the most commonly used word. However, a bull market can occur in any asset that can be purchased or sold, from individual stocks to real estate, bonds, and currencies.

A bull market is the polar opposite of a bear market, in which stock prices drop. The difference is easy to remember thanks to the nomenclature: when agitated, bulls charge. Because they’re notorious for moving quickly, they’ve become a metaphor for a soaring stock market. Surly, protective bears, on the other hand, are associated with hibernation, making them the ideal metaphor for a sinking or slow stock market.

The names “bull” and “bear” are widely used in the investment sector to describe market circumstances. These words characterize the general performance of stock markets, such as whether they are increasing or decreasing in value. As an investor, the market’s direction is a major force that has a significant impact on your portfolio. As a result, it’s critical to comprehend how each of these market conditions could affect your investments.

KEY TAKEAWAYS

A bull market exists in an economy that is growing and where most stocks are losing value, whereas a bear market exists in an economy that is decreasing and where most stocks are losing value.
Despite the fact that some investors are “bearish,” the bulk of investors are “bullish.” Over lengthy time horizons, the stock market has tended to produce positive returns.
In a bear market, many securities lose value and prices become erratic, making investing more risky.
Because timing a market bottom is difficult, investors may remove their funds from a bear market and hold cash until the trend reverses, bringing prices even lower.

1. Characteristics of a Bull Market

Bull markets have a few features that tend to predict and accompany them.
High investor confidence: When investors are confident in market trends, they are more willing to take risks with their investments, putting money into the market and helping it flourish.
Profitability in company: Stock markets reflect the perception of the business climate. When a company’s bottom line improves, investors acquire stock in the company. Investors will choose to invest in a formerly private company’s initial public offering (IPO) if they believe the company has plotted a profitable trajectory, all of which can fuel a bull market. However, there are certain exceptions.

On paper, enterprises might be overpriced, resulting in market corrections or even bear markets. The dot-com bubble of the early 2000s, for example, was created by overvaluation of several tech stocks.
Specific interest rates: When a central bank, such as the Federal Reserve of the United States, reduces interest rates, stocks become a more appealing investment, and a bull market can result. Bonds can join a bull market when central banks boost interest rates because they pay a higher return on investment.
Stability in general: When businesses are steady and predictable, market indices thrive. In most cases, when

Stock brokerages manage continuous buying while interest rates remain stable or inflation remains consistent. Following market disasters in the late 1920s and early 1930s, the federal government established numerous organizations, such as the Federal Deposit Insurance Corporation (FDIC), to aid in the promotion of confidence and stability. This stability would aid in the resumption of a long-term bull market following World War II.

2. How to invest in a bull market

You should have a long-term focus regardless of market conditions in order to create long-term prosperity. While it’s a good idea to invest when stocks are cheap, trying to timing the market is a bad idea. In any market, great long-term firms can be found.
Learning the theory of dollar-cost averaging is a good idea. This entails spending the same amount of money at regular periods, which can assist you invest during a bull market while also allowing your portfolio to gain from market corrections and crashes.

3. Example of bull market

From March 2009 to March 2020, the world saw its longest bull market, which lasted 11 years. It was the most amazing bullish advance in history, surviving the European sovereign debt crisis, Iraqi and Libyan civil conflicts, the US-China trade war, and Brexit. The Coronavirus pandemic, on the other hand, was responsible for its demise.
Stocks like the Dow Jones Industrial Average and the S&P 500 performed spectacularly during this favorable market time. The Fed funds target interest rate, which has been kept near zero in the United States, is thought to be a key element in its survival.

Other historical instances include the US housing bubble, which had 102 percent increases between October 2002 and October 2007, post-World War II advances, and dot-com bubble rallies.

4. How Bull Markets Compare to Bear Markets

A bear market occurs when prices fall over a period of time. Consider a bear slashing the market with its claws, knocking it down.
When a bear market starts, investors’ confidence in the market plummets, and they believe prices will continue to decline, resulting in further price reductions. Stock bear markets, like bull markets, can extend for years.
When investors believe that prices will begin to climb and then continue to rise, a bull market begins, and they begin buying stocks in the hopes that they are correct. Stock prices rise again as a result of this perception and the actions that follow.

5. Types of Bull Markets

There are a few different types of bull markets to be aware of.

Stock

The three major stock market indices typically rise at the same time. The Dow Jones Industrial Average, the S&P 500, and the NASDAQ are among them. A bull market makes higher highs and lower lows on a regular basis. In a robust economy, a stock bull market occurs.

Gold

Gold prices hit a fresh high of $1,895 on September 5, 2011. This marked the end of a gold bull market that began in 2000. Prior to it, the price of gold was frequently around $300–$400 per ounce.

Bonds

Since the mid-1980s, bonds have been bullish. This indicates that while buying a bond, investors have never lost money because their rates of return have always been positive. The St. Louis Federal Reserve’s indexes all have positive returns over this time period. Some may have come close to achieving zero returns, but none of them succeeded.

Secular

A secular bull market is a long-term, overarching trend that can run anywhere from five to twenty-five years. Without entering a bear market, a bull market might have a market correction, drop 10%, and then restart its upward trend. Smaller bear markets can exist inside a sustained bull market. These are known as primary market trends, and they occur on a regular basis.