Bull Market Definition (2024)

A bull market is an extended period of time when stock prices rise and investors are optimistic. Bull markets can last for months or even years, and stocks tend to outperform other investments like bonds.

What Is a Bull Market?

When the economy is growing, unemployment is low, consumers are buying and investors are optimistic, the stock market tends to see extended gains. This is the essence of a bull market: Continued broad gains in stocks that last for a long period of time.

Technically speaking, a bull market is defined as a 20% gain or more in a stock market index or an individual security. Contrast this with a bear market, which is a 20% or greater loss in a given market or security.

Bull markets can last for several years. The longest stock market bull run lasted for 11 years—it started in March 2009 in the wake of the Great Recession and ended in March 2020 when the Covid-19 pandemic shut down the global economy.

While there are many different ideas on how the term bull market came to be, it’s generally believed that it comes from how a bull attacks. A bull thrusts its horns upward when it attacks, so the term was adapted to describe stock market growth.

Characteristics of a Bull Market

How do you know if you’re in a bull market? Bull markets are characterized by the following phenomena:

• Sustained increases in broad market indexes. A bull market occurs with an increase of 20% or more in a broad market index—such as the or the Dow Jones Industrial Average (DJIA)—over two months or more.
• Investor confidence is high. During a bull market, investors tend to feel confident in the strength of the stock market and its future performance. Typically, investors buy more stock during a bull market and usually hold onto their investments.
• Strong national economy: A bull market is usually accompanied by a strong economy marked by high employment levels and growing gross domestic product (GDP), plus positive performance in other key economic data.

Bull Market vs. Bear Market

Bull markets can last for years, but they must eventually come to an end. When the stock market experiences a prolonged downturn, it’s called a bear market.

A bear market is characterized by these features:

• A broad market downturn. In a bear market, stock prices will fall 20% or more for a period of time.
• Economic decline. A bear market also signals other economic issues. Manufacturing production may be down, GDP growth is typically low or negative, and higher unemployment rates or low wages may occur.
• Negative investor sentiment. During a bear market, investors tend to be pessimistic about the stock market, and may be nervous about their portfolios. Their fears can cause them to sell stocks, hold cash and seek out alternative investments like bonds, precious metals, real estate or money market funds—rather than stocks.
• Duration. Bear markets are usually shorter in duration than bull markets. On average, bear markets last for 10 months.

How to Invest in a Bull Market

The stock market is volatile by nature, and you should expect the value of your portfolio to fluctuate over time widely. Average investors need to maintain a long-term perspective during a bull market.

Historically, the stock market trends up over the long term. The stock market’s average annual return from 1926 to 2021 was 12.3%. With that in mind, long-term investors shouldn’t get caught up in the type of market they’re in but stick to their investment strategy.

Trying to time the market can actually negatively affect you—it’s difficult for even the experts to do.

Investing always involves a certain level of risk. When attempting to time the market, you risk buying high before the market declines. That can lead you to make rash decisions, like selling at a loss to try and salvage some cash.

One strategy to reduce risk is dollar cost averaging. With dollar cost averaging, you invest a fixed amount of money into a security or securities at set intervals.

For example, you might invest $100 weekly, regardless of what the stock market is doing. By doing this, you’re buying more shares when the price is low and fewer shares when the price is high. Over time, this can help to average out the cost of your investment.

Tips for Investing during a Bull Market

When the stock market is on the rise, more and more people start investing in getting in on the action. While investing during a bull market can be profitable, it’s important to remember that risk is always involved. Here are four tips for staying safe during a bull market.

1. Stay the course. Maintain a long-term investment horizon, and don’t get caught up in trending stocks. Stick to your investment plan and focus on long-term goals.
2. Diversify your portfolio. Investing in different asset classes can help protect yourself from losses if the stock market declines. A diversified portfolio can include a range of stocks in different industries and a mix of other securities like bonds. Or, you may invest in index funds that allow you to invest in hundreds of companies at once.
3. Adjust your allocation as you near retirement. While timing the market isn’t a good idea, it is wise to adjust your asset allocation as you approach retirement. For example, a more aggressive portfolio primarily invested in stocks may make sense while you’re young. But when you’re 10 or 15 years away from retirement, you may need a more conservative portfolio allocation with a higher percentage invested in fixed-income securities rather than stocks.
4. Meet with a financial advisor. If you aren’t sure you have the right mix of investments or the appropriate allocation for your age, consider meeting with a financial advisor to review your portfolio. An advisor can review your investments and help you develop a plan to meet your goals.

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