A bull market is an investing 101 term for a rising stock market. Although the term falls under the category of investing basics, many beginners — and even professionals — struggle to give a precise definition. Here’s a look at the technical definition of the term, the role of bull markets in long-term market cycles, and how beginning investors can use this knowledge when devising an investment strategy.
Bull Market Definition
Although the term “bull market” refers in a general sense to any market or stock market sector that is going up, the strict definition is a market that has risen at least 20 percent. This doesn’t necessarily have to be in a straight line up, as the market constantly goes up and down from minute to minute. A bull market refers to a long-term trend that has not yet been reversed and fallen into a bear market.
Also See: What Is a Bear Market?
The long-term trend of the stock market as a whole is up. Although there are market selloffs known as corrections — defined as a drop of at least 10 percent — every year or so on average, true bull markets tend to have long durations. Data from First Trust shows that there have been nine bull markets since 1926, with durations ranging from 2.5 years to 13.9 years. The average return during each of these bull markets was 480 percent.
Related: How to Know When to Sell Stocks
Investing and Market Cycles
Although professional traders can make money whether the market is going up or down, traditional long-term investors look forward to the long periods of time during which bull markets earn them money. The truth is that no investor can predict with certainty whether the market will go up or down over a specific period of time. Historically, however, the market has proven to be cyclical, with long periods of growth punctuated by brief — albeit harrowing — selloffs.
If you’re saving for a long-term goal such as retirement, understand that you can expect to see this cycle of bull and bear play out a number of times over your investing career. Most financial professionals will encourage you to stay the course or even invest more during corrections and bear markets to reap the fruits of the bull markets that will inevitably follow.
Related: 10 Bold Stock Market Predictions