Bull market

Quick definition

A bull market is when prices are rising in the financial markets.

Key details

• When in a bull market, the prices of stocks, cryptocurrencies and other assets are broadly rising. 
• Bull markets generally correspond with positive economic conditions, such as when a country’s GDP is strong and market sentiment is optimistic. 
• Buying and holding assets for the long term is the most profitable and least risky during bull markets. 

What is a bull market?

A bull market refers to a period of time in the stock market where the prices of all investments are rising. These pronounced uptrends for a specific financial market can occur for months or even years.

Bull markets form when an economy is strengthening, usually measured in terms of growth in gross domestic product (GDP), jobs or corporate earnings. In the event of a bull market, you can expect to see a spike in commercial activity such as mergers and acquisitions (M&A), initial public offerings (IPOs), and operational expansions. 

The easiest way to identify a bull market in the case of stocks is to look at the major worldwide indices such as the S&P 500, Dow Jones Industrial Average, and FTSE 100. If these prices are on the up for a sustained period of time, this usually indicates a bull market. 

Best strategies in a bull market

Below, we have listed some of the most common strategies that investors and traders successfully implement during bull markets. 

Buy and hold 

If prices are set to rise for a sustained period, buying and holding an asset can be the best way to gain exposure to its price growth. While there will always be fluctuations along the way, holding onto your position through these bumps in the road is the best way to maximise your gains. 

Buy on dips

If a bull market is particularly strong and long-lasting, expect to see some pullbacks – also known as corrections – along the way. In this instance, buying an asset when it dips in value as other investors sell to take their profits can be a good way to acquire an asset at a discounted price.

Pyramiding

Pyramiding refers to the act of buying more of an asset as it rises in value. This is most effective during long bull runs, as it allows you to keep adding to an investment that is continually rising in price. However, make sure you exercise caution when increasing your holding in this way because a shift in the market could have serious repercussions.

Swing trading or day trading

This is a more short-term strategy to accelerate your returns, and it entails following a given market closely and taking advantage of short-term price swings throughout the day. You can even short sell as price fluctuations occur, though this is definitely a strategy for experienced traders who can tolerate elevated risk. 

How to identify a bull market

Typically, we define a bull market as starting with a 20% rise in prices, following a decline of at least 20% before it. Consequently, there have been 13 bull markets since the end of the Great Depression. Here are the four biggest bull markets that have occurred in the interim:

1. 2009-2020 bull market. When U.S. President Barack Obama bailed out failing banks and launched an economic stimulus program, the market responded by shaking off the financial crisis and surging higher. The S&P 500 ended up quadrupling over the next 11 years.
2. Post-war recovery. With war rations ending, peace setting in, a baby boom arriving, and aggressive infrastructure programs starting, the United States enjoyed an extended run of prosperity after World War II. Starting in June 1949, a bull market propelled the S&P 500 up 266% over a period of 86 months.
3. Recovery from the Great Depression. The stock market crash of 1929 brought the Roaring ‘20s to a screeching halt, ushering in the start of the Great Depression. Starting in June 1932, the S&P 500 soared 325% over a span of 57 months. Aggressive currency devaluation, monetary expansion, and government stimulus spending helped make it happen. 
4. Roaring ‘90s. Buoyed by a boom in the technology sector, the economy and the stock market both took flight in the 1990s. The most profitable bull market of all time started in October 1990, lasted more than nine years, and delivered a mouthwatering 417% return.

How to know when a bull market is over

In technical terms, a bull market ends when a 20% fall in prices follows the 20% uptrend. However, there are telltale signs to look out for before this that indicate a slowdown. These include a weakening economy, featuring lower growth in GDP or jobs, an earnings shortfalls among market-leading stocks, or signs of technical weakness like market averages falling below key price levels. 

Where can I learn more?

The opposite of a bull market is a bear market; click here to learn about that, or feel free to check out our stock, cryptocurrency, or commodities investing hubs.