What Is a Bull Market, and How Can Investors Benefit From One?

Recession decreases investor confidence as corporate profits decline. Rising prices indicate a bullish market sentiment, whereas falling prices would show a bearish market sentiment. High investor confidence in line with a stable economy will help the market to grow. If several investors feel positive about certain security, asset, or stock, it can create a movement caused by crowd psychology.

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bull market us history definition

There have been several notable Bull and Bear Market time periods throughout U.S. history that have left significant impacts on the economy and society as a whole. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. In November 2017, CNBC ran a piece entitled ‘Here’s what “bull market” means and how you know if you’re in one’. Interestingly, it reveals that over half of respondents in a financial fitness survey couldn’t define the financial term.

It’s when traders have confidence that prices are good, so they are optimistic about the future. The opposite of a bull market is a bear market – a period characterised by falling prices and general trader pessimism. Additionally, one of the best non-numerical indicators for a bull market is rising investor confidence. During these times, there is a strong overall demand for stocks, and the general “tone” of market commentary tends to be positive. And, because companies can get higher valuations for their equity, we tend to see high levels of initial public offering, or IPO, activity in bull markets. As technology made its way into US homes and factories, the domestic economy benefited from an efficiency boom that helped market conditions.

Longest bull market to date – 2009 to 2020 (131 months)

For example, the overvaluation of tech stocks during the Internet boom caused a dot-com bubble between 1998 and 2000. However, global stock markets recovered at a remarkable rate, and the crash ended only a few months later, on the 7th of April 2020, when global stock markets entered a bull market again. The phrases were first published in the 18th-century book, “Every Man His Own Broker,” by Thomas Mortimer. A bull market is the market condition when prices continue to rise and is generally desirable for most investors.

bull market us history definition

However, understanding the general direction the market is going and general economic influences, one can have an idea of when and how to invest. And these moods, bullish and bearish behaviors, reflect the investors’ sentiment towards their own buying and selling behavior. The longest-ever bull market started in 2009 after the housing crisis, and it ended abruptly with a sudden Covid-19 pandemic-induced stock market crash on the 20th of February 2020.

Three major stock market indexes are Dow Jones Industrial Average, the S&P 500, and the NASDAQ. Usually, all three would show signs of rising stock market indexes simultaneously, driven by economic health and investor sentiment. As a comparison, in a recession, money usage by banks is curbed, and interest rates of loans go up, limiting investments and leading to a bear market. What is more, during positive economic growth, more private companies likely issue an initial public offering, and an increase in IPO activity would then further grow a bull market. Bull markets often coincide with a strong economy and optimistic market sentiment; investors have a more positive outlook when inflation keeps a steady pace.

This can improve investor confidence and create conditions for good economic performance. Market stability can increase consumer and investor confidence, which is a key element of a bull market. If stakeholders in a market feel confident that the conditions will remain predictable in the near future, they are more likely to invest. It can be tempting to go all-in on a hot stock or sector when the market has been growing, but the end may be closer than you think. If you’ve only bought the biggest so-called winners, you may find that their pumped-up prices evaporate the quickest. A super-strong bull market can make even weak companies appear like sure things — until they aren’t.

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The imagery of a bull-rushing symbolizes the effect a general rise in stock markets has on investors. Confidence is high and investors “rush” into the market to buy stocks. This graph measures the total gains of the main stock market indexes over time. The late 90s and early 2000s witnessed some of the highest gains in a Bull Market time period, only to have dropped off after overvalued tech companies began selling off or failing. When stocks are rising in value across the board, journalists often reference a bull market, which the opposite of a bear market, or period of decline.

These are just a few examples of some of the biggest bull markets in history. There have been many others, each with its own unique set of circumstances and drivers. Traders employ a variety of strategies, such as increased buy and hold and retracement, to profit off bull markets. For example, if a business earns $1 billion per year and has 1 billion shares, its earnings per share are $1. If the same business’s stock price is $10, then you divide the $10 stock price by 1 for a P/E ratio of 10. This record-breaking bull market lasted 131.4 months , making it the longest in history.

In other words, people are taking their money out of their investments and not putting it back in. Corporations lose a lot of their value and a lot of their capital during this time. Some investors will attempt to use risky trade tactics during a Bear Market like short selling and call options. Bear Markets usually follow a downturn in the U.S. economy like after reports of low job numbers, high inflation, or a big raise on income tax. It’s essential to understand the definition of investment terms like “bull market” if you plan to invest in the stock market or have investments through retirement funds. As a result of the volatility brought by COVID-19 and its impact on the world economy, financial news outlets have been discussing bull markets and bear markets.

  • As prices reach their peak, sell pressure begins, and investors begin seeking a way out.
  • Originally, the term ‘bull’ referred to a speculative purchase made in the hope that stock prices would increase; the name was then given to the individual who made such purchases.
  • The Great Depression – Stock Market Crash of 1929 witnessed the largest drop in overall stock market value and the highest unemployment rate recorded in U.S. history.
  • An investor can choose a handful of well-known corporations’ stock and “ride the wave” of increased values.

This second bull market for stocks lasted until December 2021, when the S&P 500 peaked, and then ultimately turned into a bear market. Bull markets often end with asset prices rising so fast and furiously that they end up in a bubble, with prices way out of connection with fundamentals. Asset prices may then fall as part of a market crash, an abrupt period of often just a few days when prices fall quickly.

The steady flow of good news encourages more and more investors to move back in, which sends prices higher. The public participation phase tends to be the longest lasting of the three bull market phases, and also the one with the largest price movement. Long positions are taken up by technical and trend traders as the new upward primary trend confirms itself. A bull market, or a bull run, is an extended period of rising stock prices, as measured by major indices like the S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average. Although people usually use the term in reference to the stock market, the term can apply to real estate prices, bond prices, commodities—any asset that can be bought and sold.

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bull market us history definition

There is no definitive answer to this question, as bull markets differ from one another in longevity, causation, and other elements. Markets are ever-evolving, which means that many events can quickly change investor confidence, interest rates, and other characteristics that may impact bull or bear markets. OverviewA bull market is a market in which prices have been rising over time – and haven’t fallen by more than 20% from their peak. It’s most often used in reference to the stock market, but it can also be applied to other financial markets.

An overall bull market may encounter dips along the road, referred to as market corrections, but in general, the underlying price trend will continue to rise. A number of indicators might point to the fact that we are in a bull market, and thus the following market characteristics are more likely to be seen during a bull market. Since the financial crisis of 2008, the stock market has been growing.

Understanding Bull Markets

With policymakers promising at least two more rate increases in 2023, the next bull market is unlikely to start any time soon. However, research from 2019 suggests that the average bull market since 1932 has lasted around 3.8 years. One condition that can lead to a bull market is a low-interest-rate environment. Lower interest rates mean debt costs are affordable, making it easier for businesses to borrow money. It’s almost impossible to tell when the market is at its peak, and even professionals rarely manage to call it right. Not only is it possible that you sell too late — but you might also end up selling way too early, missing out on future profits.

This bull run was curtailed in part when the Fed raised interest rates and investor confidence was shaken by international tensions. Bull markets coincide with and are bolstered by strong economic conditions, low unemployment, and often a rise in corporate profits. It refers to an upward trend in stock market prices, typically over a period of months or years.

What is a secular bull market?

For this reason, “bottom-line growth” – or growth in profits – is also essential to explore. Likewise, when investor confidence is high, it’s easier for companies to raise money. This markets.com forex broker overview allows companies to invest more money into growth and production. Low-interest rates, strong profitability, clear regulation, and other factors can all improve investor confidence.

Think of a bear swiping downward with its claws, knocking the market down. With the hopes of obtaining a bigger profit, investors’ faith in the market’s growth will lead them to buy more shares. However, when a market is doing well, investors who already have shares in that market tend to hold on to them since they are making a profit and they expect prices to continue to increase. This creates a situation in which there is a strong demand for shares, but the supply is low. Because the competition for the few available shares is high, investors are willing to pay more to obtain them, which drives up the prices even more.

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The Federal Reserve also lowered rates, and this provided much-needed stimulus to the economy. Buoyed by government spending and optimism about the economy and its long-term prospects, indexes quickly began a recovery after bottoming out in the last half of March 2020. After just a few months, the S&P 500, Dow, and Nasdaq had all regained the value they lost, putting the market well into bull territory. By late August, the S&P 500 and the Nasdaq were up 58% and 75% from their March 23 lows. The first gold bull market occurred in the 1970s when Nixon ended the gold standard, and the price went from a mere $35 to a whopping $850. The term bear reportedly became popular in the early 18th century when referring to stocks after a trade company’s stocks collapsed after being sold by speculators who didn’t own them.

A bull market means that stocks are rising, but it pays to understand how it works before you charge

Prior to the latest one, there was a lengthy bull market that lasted from 2002 until the late-2007 bear market that coincided with the financial crisis. The bottom line is that bull markets tend to be several years in length and are always preceded by and ended by bear markets. A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities. If a particular economy or stock market is performing well, it is likely to attract the attention of foreign investors.

During a Bull Market time period, any common investor can make money just by being involved with the stock market in the first place. An investor can choose a handful of well-known corporations’ stock and “ride the wave” of increased values. Or they can choose to invest in broad indexes or funds and still be able to see a positive increase in their portfolio. Whereas in a Bear Market, it is much more difficult to make money and much riskier.

Despite the inevitable dips, over an extended time horizon, the stock market has never failed to rise. So not being invested in the market means missing out over the long haul. Like a savvy matador, individual investors should keep an eye on the bull’s moves, and adjust accordingly — but always stay focused on their overall strategy and goals. Parts of the market are well within bear market territory already, such as the Nasdaq, which is down 27% as of June 2022 from its high in November 2021. However, neither the S&P 500 nor the Dow Jones Industrial Average are in bear market territory yet. In these prime post-war years, the S&P 500 rose 267% over 86 months, which works out to a commendable annualized return of 20%.

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