What Is a Bull Market? Definition, History, & Strategies for Investors

Table of Contents:

  1. Bull market definition
  2. Bull market characteristics
  3. Longest bull market in history
  4. Why it’s called a bull market
  5. Phases of a bull market
  6. Bull market considerations
  7. The bottom line

Investing in the stock market is full of ups and downs, as stocks rise and fall regularly. However, when longer trends occur, you’ll hear the terms bull vs. bear, which signify longer uptrends or downtrends in the market.

A market in an extended downtrend is called a bear market. Correspondingly, a bull market is a market in an extended uptrend.

Key Takeaways:

  • Bull markets occur when stock prices rise for a significant period of time, and bear markets are when prices fall.
  • Exchange-traded funds (ETFs) are baskets of funds that trade like stocks.
  • A bull market signals a generally favorable outlook for a stock, industry or entire economy.
  • A bull market is defined as such when stock prices rise by 20% over time from its bottom.

Bull market definition

So, as an investor, you probably want to know, what does a bull market mean? Basically, a bull market is when prices rise in the stock market, such as the S&P 500 index and the Dow Jones Industrial Average (DJIA). The market is considered bullish when prices rise at least 20% over a period of 2 months or more. Generally, any consistent and persistent upward trend is referred to as a bullish market.

Although the stock market will still experience dips during a bull market, those dips don’t affect the continuing upward trend where confidence and the demand to buy stocks are high.

Investors love a bull market because of the potential to see gains in their investments. However, there’s still a degree of volatility as with any market.

Bull market characteristics

Navigating bear markets and bull markets is relatively simple as there are a couple of characteristics to look for that point to either trend.

The positive trend of a bull market drives investor confidence in the stock market to deliver profits and pay dividends. It usually goes hand in hand with rising economic indicators, such as the gross domestic product (GDP), which is an indicator of the health of the economy.

The GDP relates to various factors, such as the total dollar value of all products and services produced over a specific period and may also coincide with a drop in unemployment and a rise in corporate profits. Along with the upward trend, the outlook for stocks brightens, as does the overall positive sentiment of the economy.

Although some indicators of bull markets can be measured more easily, such as unemployment statistics and corporate profits, some things like investor confidence and financial optimism may be more difficult to detect.

Longest bull market in history

When we look at history, we can see that there have been several bull markets that have bounced back nicely from previous bear markets. Here are a few of the bull market examples from the last 50 years.

  • 1974 – 1980 (74 months). The economic recovery of the 1970s. Although the ’70s experienced some turbulent times that included high inflation, unemployment, and an overall feeling of uncertainty, a rally began in 1974 after a recession from the Second World War expansion.
  • 1982 – 1987 (60 months). The Reagan presidency. Although one of the shortest bull runs, S&P 500 gains of 100% or more were recorded and fueled by significant job creation and big tax cuts as market sentiment and economic growth rose.
  • 1990 – 2000 (113 months). The 1990s expansion. In October 1990, as technology companies exploded and the internet was taking off, there was job growth and a tax relief act that worked in overdrive as the stock market rose by 417% until early 2000 when the bottom dropped out. The bull market lasted just under 9.5 years.
  • 2009 – 2020 (131.4 months). The post-global financial crisis. March 2009 was the beginning of the longest bull market on record with low-interest rates and tax cuts that helped sustain the long-running bull market.

Although COVID-19 ended the streak, it didn’t affect the market index as we expected. Companies were laying off workers left and right, some were closing their doors for good, and there was a rising fear as many people were touched by the virus. The global fear could have led toward an economic shutdown that could have devastated the financial markets. However, after one of the shortest bear markets we’ve seen, the stock market bounced back.

You may be wondering, what’s a bull run? It’s when the stock market prices are rising and showing signs of a continued upward trend. It’s coupled with investor optimism, a strong economy, and increasing employment numbers. Basically, things are looking pretty positive overall.

Why it’s called a bull market

There’s no doubt that investing has a lot of interesting terms. Bull and bear markets are considered a couple that is used frequently to describe market conditions and whether stock prices are rising or falling. A bear market is when prices depreciate, whereas a bull market is when they appreciate.

So, how did it get its name? Although the origin of the term and its connections to investing are unclear, it has been referred to in works going back to medieval times.

Both bears and bulls are known for their strength, each having a distinct way of attacking. Bears tend to swipe down, which is why a bearish market is used to describe a downtrend or a depreciation in market prices, whereas bulls thrust their horns in an upward motion when attacking, so the term bullish is used to describe an uptrend or an appreciation in market prices.

Phases of a bull market

Like so many aspects of life, investing has phases that tend to correspond with economic cycles, also called business cycles. As you may know, economic cycles are the fluctuations that occur between times of growth (expansion) and recession (contraction) that are determined by the GDP, consumer spending, unemployment numbers, interest rates, and the economy as a whole.

There are 4 phases that occur during bull markets, and each is affected by a variety of factors that can change over time and lead to the next phase.

The 4 phases of a bull market are:

  1. Expansion – a time of growth where interest rates are typically low, and the production of goods and services is high. Companies are generating profits, expanding their business, and hiring employees. Money is being spent, which in turn keeps the economy going. As expansion continues and matures, it will inevitably experience a slowdown, and we will see interest rates rising as the phase changes.
  2. Peak – when the economy’s growth has reached its upper limit in productivity and hits a plateau as inflation rises, unemployment numbers go up, and the real estate market declines, signaling the end of the expansion phase.
  3. Contraction – when the economy’s overall growth slows down, and unemployment continues to rise. Business declines and layoffs occur, and business profits contract as consumer spending halts, lowering profits even more.
  4. Trough – when the economy is at its lowest point. Business sales halt, credit is difficult to obtain, the stock market drops, and unemployment peaks.

Although there aren’t any rules on how long each phase may last, they do not last forever, transitioning to the next stage after it runs its course in a bullish market.

We are all participants in the economy, and each of us may be impacted differently. But knowing that a phase will end and a new one will begin can help you make sound investment decisions.

Bull market considerations

As an investor, finding strategies that can help make decisions in various markets can be beneficial. However, investing can be volatile and uncertain, and no strategy can guarantee profits or losses. Still, investors like them, so we’ll go over a few that can be utilized in a bullish stock market.

Bull market strategies focus on benefiting from strong uptrends in the market, so buying early is a benefit because rising prices can help increase stock prices before they have reached their peak. This is when many investors choose to sell and take their profits. But, of course, it can be challenging to know when stocks have reached their peak, so you’d want to watch closely if that’s your goal.

Popular bull market strategies include:

  • Buy and hold – when investors purchase a stock and keep it over a more extended period. This strategy is a basic one that many investors like due to the hands-off approach. Some investors choose to continue to buy additional shares as the price rises, adding even more shares to their portfolio.
  • Retracement – when, despite rising prices, the stock price reverses or pulls back for a short time. Investors can use the dip as an opportunity to buy more shares if they believe the stock will continue to rise.
  • Swing trading – an active strategy that involves paying close attention to the market and using techniques that will offer maximum profits, such as short selling. It focuses on short-term gains, and while some investors choose more volatile stocks that rise and fall quickly, others select more consistent stocks. Either way, the goal is to spot the next price move and act on it to gain a profit if the timing is right.

Some techniques are commonly paired with trading before and after regular stock market hours or during NYSE holidays, so it’s a good idea to pay attention to the pros and cons of doing that.

The bottom line

Bull markets are exciting times to be an investor. The economy appears strong, unemployment is typically low, businesses are profiting and expanding, and the overall market sentiment is positive. All these good things happening at once can make investors feel pretty good about increasing their portfolios.

Of course, it’s also important to understand that during any type of market, investing has its risks and rewards, so doing your research before making any type of investment decision is an intelligent thing to do.

Investing is a beneficial way to save for the future and if you haven’t already started, now is a great time. It’s easy with the Public app, so download it today!

The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.