In this article, we’ll cover:

• Characteristics of a bull market
• History of bull markets
• Bull vs. bear markets
• Considerations for a bull market

Characteristics of a bull market

Bull markets are typically a sign of investor confidence, a strong economy, high employment levels, and other positive economic indicators. The overall optimistic investor sentiment generally leads to high trading volumes and strong upward stock price trends, which is reflected by increases in broad market indexes.

• Positive investor sentiment: Investors have widespread confidence in the stock market and the future of the economy overall.
• Strong upward price trend: Asset prices continue to increase, with each peak (high) and trough (low) reaching progressively higher values.
• High trading volume: Investors trade more securities, indicating higher demand and lower volatility.
• Positive economic indicators: The economy shows signs of strength, such as low unemployment levels, increased consumer and retail spending, higher gross domestic product (GDP), and steady inflation.
• Sustained increases in broad market indexes: Broad market indexes such as the S&P 500 or the Dow Jones Industrial Average increase at least 20% over two months or more.

History of bull markets

Originally referring to a speculative purchase made with the expectation that stock prices would rise, the term “bull” was later applied to the person making such purchases. The animal imagery caught on in the 18th century, and we’ve associated the term “bull market” with the stock market ever since. Bull markets can last anywhere from a couple of months to several years. They typically last longer and occur more frequently than bear markets.  

The longest bull markets in history

While the average length of a bull market is 2.7 years, the timespan of such a period varies widely, as does the associated market growth. Historically, bull markets have ended due to social or political unrest, credit crunches, inflation, recession, asset bubble unwinds, or other significant events. The three longest-running bull markets in U.S. history include the post-WW2 boom, the 1990s boom, and the Great Recession recovery.

• Post-WW2 boom: Began in June 1949 and lasted 86 months. By the end of the boom in 1956, growth had exceeded 266%.
• 1990s boom: Began in October 1990 and lasted 113 months. By 1999, increases exceeded 417%.
• Great recession recovery: Began in March 2009, lasted 132 months, and ended with the rise of the COVID-19 pandemic in 2020. This longest-running bull market in U.S. history saw indexes rise more than 330%.

Bull vs. bear markets

While a bull market is known for charging forward, its bear market counterpart is known for retreating, like a hibernating bear.  The SEC defines a bear market as a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period. Many investors take a slightly different strategy when investing in a bear market, such as holding defensive stocks. 

What to consider in a bull market

While investing in a bull market can feel exciting and potentially lucrative, it doesn’t come without risk. There are several risk factors unique to bull markets that you may want to think through. 

• Overvaluation and potential market bubbles: During a bull market, some securities may trade at a rate that is unjustifiably and significantly higher than comparable assets. Overvaluation can lead to rapidly escalating market bubbles. When the bubble inevitably bursts, your profits could take a significant hit.
• Investor complacency and herd mentality: It’s easier to relax when the prices keep going up, but that can lead to a false sense of confidence in your investments. Nobody, not even seasoned professionals, can predict what the market will do. Going along with the herd during a bull market may not be the right choice for your long-term goals.  
• Volatility and potential for sudden market downturns: Market volatility is always a risk, even during a bull market. Sudden market downturns do happen during bull markets, and they can have a negative impact on your portfolio.
• Speculative behavior and excessive risk-taking: The possibility of extremely high returns can seem exciting, but it can expose you to big risks if you’re not thoughtful about your strategy. Understand your risk tolerance before you invest, especially in speculative stocks.
• Long-term sustainability and potential for market corrections: Remember that a full-on bull market may not be sustainable long term. Market corrections, or declines of more than 10%, but less than 20%, are possible. 

Take the bull by the horns

When a bull market is raging, some investors see rising stock values as a signal to buy as much as possible. While purchasing stocks may be the right move for you, remember that a long-term investing strategy is about building wealth over the long term, not just making a quick buck. A future-focused strategy is about time in the market, not timing the market. No matter what the market brings, Stash can help you build an investment strategy that creates opportunity and supports your financial goals. 

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