A bull market is a sustained increase in market prices, typically beginning from a rise of 20% or more in a broad market index, over at least a two month period. These conditions signal widespread investor optimism, and a belief that prices will continue to rise. Bullish investors adopt a variety of investment strategies to attempt to profit from these price rises, and for long-term investors, these rallies are an important time to stay invested.
A bull market is a period when a broad market index, like the S&P 500, rises by 20% or more from its recent lows. This upward trend is fueled by widespread investor confidence and optimism, which drives a sustained period of increasing prices. During a bull market, investors use various strategies to try and profit from the rising values. A bull market is the direct opposite to a bear market, which is a market drop of 20% or more.
When are we in a bull market?
Similar to bear markets, bull markets can only be identified retrospectively, once a major index has risen 20% or more from a recent low.
Certain economic signals and market conditions can create the environment for a bull market:
- Strong economic growth: When the economy is expanding, it's a powerful driver for the stock market. Key signs include low unemployment, rising GDP, and healthy wage growth, which all contribute to higher consumer spending.
- Rising corporate profits: A bull market is built on the success of businesses. When companies consistently report strong earnings and positive future outlooks, it boosts investor confidence and drives their stock prices higher.
- High investor confidence: When investors feel positive about the future of the economy and corporate earnings, they are more willing to buy stocks, creating upward momentum.
- Supportive monetary policy: When central banks, like the Bank of England, keep interest rates low or stable, it makes it cheaper for companies to borrow and invest. This stimulates the economy and often makes stocks a more attractive investment compared to lower-yielding bonds or savings accounts.
How long do bull markets last?
Although no two bull markets are the same, historical data shows bull periods far outlast bear periods on average. For example, the average duration of the seven bull markets between 1969 and 2024 was six years and nine months. In contrast, the average duration of the six bear markets in the same period, was one year and three months.1
The contrast in this data is central to the principle that over time, markets have trended upwards, more than they have downwards. The crucial takeaway is that staying invested is important for maximising potential returns, as even if you miss the bad days, you could also be missing out on great runs too.
What does bullish mean?
A bullish investor expects an upward trajectory in prices (the direct opposite of being bearish). Confidence is typically based on positive signs such as:
- Strong company earnings reports.
- Positive economic news e.g. declining unemployment.
- Innovative new products or services.
- Favourable industry trends.
A bull’s primary goal is to profit from these rising prices. The most common strategy is simply buying an asset and holding it, also known as ‘going long’. This principle can be applied by any investor hoping to generate returns in the market.
More active investors might take more risk:
- Buying call options: essentially reserving the right to buy a stock at a set price, which becomes profitable if prices rise beyond the call level.
- Growth stocks: speculating on companies in high-growth sectors, which have historically yielded greater returns than the rest of the market.
How to approach a bull market?
It’s important to approach bull markets with the same disciplined approach you’d apply to any investing scenario. The ultimate goal is to not miss out on the upward trend, whilst not being driven by emotion which can lead to mistakes. For example:
- Staying invested but avoiding FOMO: it can be tempting to chase ‘hot stocks’ in high-growth areas in order to pursue the biggest gains, but it’s important to balance opportunity with your risk level. Don’t jump in with more money than you’re comfortable investing, and stick to your long-term plan.
- Review and rebalance: bull runs can cause your portfolio to drift from its set targets. Better performing assets will grow to become a larger percentage of your holdings, causing an unintentional shift in risk. Consider rebalancing to your original allocations, by moving assets from overperforming to underperforming assets to lock in some gains and stay diversified.
- Regular investing: by sticking to your usual regular investment plan, you won’t get drawn into trying to time the market. A steady approach ensures you're exposed to differing purchase prices, rather than going all in at a potential market high.
Bull markets don’t last forever. Whilst they can present solid opportunities for gains, and staying invested is important, it’s equally important to not get carried away and invest more than you’re comfortable with. Stick to your investing plan and avoid getting too caught up in the latest trend, as you may become overweight in a particular theme or market, without even realising.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. Chip does not offer single share stocks within its product range.
Important to know: When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment.
1Tax treatment depends on individual circumstances and may be subject to change in the future.