A bull market is a period where benchmark stock market indices, like the S&P 500, rise in value by 20% from their most recent lows for at least two months. Bull markets are notable because investors are generally optimistic about improving economic conditions, increasing corporate profits, and future stock market valuations, so they might describe themselves or the markets as “bullish.” However, these periods don’t last forever. They can range anywhere from a few months to a few years, but generally are longer than bear markets, which are a contradiction to bull markets. Bear markets are a pattern of downward stock market prices, where investors feel uneasy about the future — usually causing a sell off.
From 1926 to 2019, the average bull and bear market lengths were 6.6 years and 1.3 years, respectively. However, the longest bull market isn’t far from memory. Beginning in March 2009, the market ran up for 121 months straight. What’s notable is that bull markets during this period returned a cumulative 334%, while bear markets had a total loss of 39%. These figures suggest that investing for the long term could help give you the best chance of positive returns. However, it’s important to note that past figures cannot predict future market trends.
Here’s everything you need to know about bull markets, and what to consider if you’re investing throughout one.
What is a bull market?
We can look as far back as the Roaring 1920’s, to as recently as the 2021 post-pandemic stock market run, and find examples of bull markets.
The fundamental issue with bull or bear markets is no one knows when the top or bottom may be. Moreover, no two look alike. One could last four months or four years, and there’s no way to know when it will end. So as you’re researching current market trends, be sure to read into economic conditions as well as current events that may be influencing the direction of the market.
Potential bull market characteristics
While no two bull markets ever look like, here are a few points that generally mark a bull market cycle.
- Economic growth: Bull markets often happen during periods of economic growth. Positive GDP growth, low unemployment rates, rising consumer spending, and expanding corporate profits create a favorable environment for stock market gains. Strong economic fundamentals can potentially generate investor optimism and may drive stock prices higher.
- Investor confidence: Bull markets thrive on positive investor sentiment and confidence in the market’s future. When investors believe that economic conditions are favorable and corporate earnings will continue to rise, they are more likely to invest in stocks, driving demand and pushing prices upward. Positive news and a general sense of optimism contribute to heightened investor confidence.
- Low interest rates: When interest rates are low, borrowing costs decrease, making it easier for businesses and individuals to access capital. This stimulates investment, consumption, and economic growth, providing a positive environment for potential stock market gains.
- Corporate earnings growth: Strong corporate performance is a vital driver of bull markets. When companies demonstrate consistent earnings growth, investors are more inclined to invest in their stocks. Positive earnings reports and outlooks signal that businesses are thriving, leading to increased demand and upward pressure on stock prices.
- Technological advancements and innovation: New and disruptive inventions can create new industries, improve productivity, and generate economic growth. Companies at the forefront of technological innovation may experience significant stock price appreciation, driving overall market gains.
- Investor inflows and demand: Bull markets typically witness increased investor participation and inflows of capital into the stock market. As more investors seek to capitalize on rising prices and market optimism, demand for stocks could rise, potentially pushing prices higher. The influx of capital from retail and institutional investors may prop up stock prices.
Bull markets should be exciting, yet unemotional
It can be a good feeling to see your Roth IRA or taxable brokerage account rise in value during a bull market. But bull markets have historically been categorized by volatility, so it’s important to do your due diligence. Here’s an example:
Here’s what one study found if you invested $10,000 in the S&P 500 from Dec. 31, 2006, to Dec. 31, 2021:
|If you:||Your balance would be:||Your return would be:|
|Stayed invested for 15 years||$45,682||10.66%|
|Missed the 10 best days||$20,929||5.05%|
|Missed the 20 best days||$12,671||1.59%|
|Missed the 30 best days||$8,365||-1.18%|
|Missed the 40 best days||$5,786||-3.58%|
It’s nearly impossible to time when the market is going to go up, down or sideways. So regardless of whether it’s a bull or bear market, it usually doesn’t beat consistently investing for the long term in most cases.
The M1 bottom line
A bull market is simply a quirky name for investors to talk about a stock market that is rising in value, like a bull charging into an arena. The easiest way to remember the difference between a bear and bull market is that horns on a bull point upward, while bears ears point downward.
But regardless of what type of market you’re investing in, historical data shows that continuing to invest for the long term may give you a chance of coming out on top.
All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. M1 does not provide any financial advice.
All investments involve risk including the loss of principal and past performance does not guarantee future results.
All investing involves risk, including the risk of losing the money you invest. Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.