What Is a Bull Market?

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A bull market is when an asset increases 20% from its prior lows and begins to sustain a reliable uptrend. Basically, it’s a prolonged period where asset values continue to increase. The associated term “bull” can be connected with this unrelenting charging forward of price.

This can sometimes be followed by unrealistic expectations that translate into asset bubbles where valuation metrics no longer make sense. As a result, sharp declines can occur, and bear markets take over.

Bull markets are part of the recurring cycles in economic markets. However, timing their moves to correspond with market cyclicality is nearly impossible for most people. Bull markets can be great times to make money, but if investors are overexposed, they can face major downswings.

Bull vs. Bear Markets: What’s the Difference?

A bull market is when stock prices rise 20% or more from recent lows, usually alongside strong economic growth, low unemployment, and rising investor confidence. These markets often last several years and are marked by optimism and widespread gains.

A bear market, on the other hand, is when prices fall 20% or more from recent highs, typically during a recession or economic slowdown. They’re usually shorter, lasting less than two years, and come with fear, volatility, and a shift to safer investments.

Knowing the difference helps you adjust your investing strategy to match the market cycle, whether it’s taking advantage of growth or protecting against losses.

What Causes a Bull Market?

Bull markets are supported by a number of factors. Wage growth, capital inflows, minimal unemployment, strong consumer spending and increasing corporate profits are all factors that lead to sustainable bull runs.

When the opposite occurs, however, markets can sustain rapid falls, dampened outlooks and weaker demand for products or services that send markets spiraling downward.

How Long Do Bull Markets Last?

Stock markets witnessed their longest-ever bull run from 2009 to 2020, but this was a historic outlier. It’s important to discount this recency bias, as the average timeframe for a bull market is 6.6 years.

What Are the Benefits of Bull Markets?

The main benefit is a favorable appreciation in asset prices for investors. The average bull market returns are in the region of 112%, which poses an attractive opportunity to earn a return on money.

What Is the Difference Between a Bull and Bear Market?

Simply put, bull markets correlate with increasing asset prices, whereas bear markets correlate with decreasing asset prices.

Typically, a bear market is defined as the point where an asset or stock market index such as the S&P 500 has declined by more than 20% from its highs. On the other side of the coin is a bull market, where the same defined asset or index fund has gained 20% from its lows.

However, these are loosely used methods to define overall market sentiment.

How to Invest During a Bull Market

Although a bull market usually happens at the same time that the economy is considered to be really strong, you should practice the same buying strategies for when the market is low. After all, history has shown us that no market high has lasted forever. 

1. Don’t Try to Time the Market

Bull markets can be good times to buy, considering the typical return is 112% from start to finish. That said, timing the markets can be extremely difficult. If you make an investment near the end of a bull run, you could face significant losses.

2. Use Dollar Cost Averaging

Dollar cost averaging is when you pick a certain amount of money and invest it on a specific schedule. For example, every two weeks you invest $50. 

This strategy is recommended because it takes the emotion out of your investing choices. Plus, because the market value is always changing, sometimes your $50 will go further than others.

3. Keep a Diversified Portfolio

Picking individual stocks carries far more risk, as it exposes investors to increased volatility. At any time, one sector is outperforming another. For example, the manufacturing sector might not experience a downturn at the same time as the tech sector. 

Instead of buying individual stocks, look into index funds or ETFs. These are like baskets of securities that can help you invest into different companies or even industries at once. 

Examples of Bull Markets

The market usually enters a bull market after a downturn. For example, the “dot-com crash” happened in the year 2000. In October 2002, the market hit its trough or the lowest point before it went up again. By October 2007, the market hit its peak high before the 2008 Great Recession.

After the Great Recession, the market trough happened in March 2009 and prices started going up again. The next peak happened on February 2020. However, the COVID-19 pandemic caused a quick recession that started the cycle all over again.

How to Identify When a Bull Market Is Ending

A bull market usually ends not that long after the market hits its highest peak. However, unexpected global events, like a pandemic, can disrupt the cycle and make it come earlier. No matter what’s happening in the market, remember your financial goals and don’t panic. 

Although what goes up must come down, it must also go up again.

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