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What is a bull market?
Learn the defining features of a bull market, understand the advantages it holds for investors, and uncover the benefits this knowledge can bring to your investment journey—all within our informative article.
Quote
"There will always be bull markets, followed by bear markets, followed by bull markets."
Big ideas
- Bull markets can be driven by various factors, including economic growth, technological innovation, and investor optimism, while bear markets often result from economic downturns and widespread pessimism.
- The longest bull market in history lasted nearly 11 years, from March 2009 to March 2020, highlighting the potential for extended periods of economic expansion and stock market gains.
- While bull markets offer opportunities for profit, they also come with risks, such as potential overvaluation and the challenge of predicting when the market trend might reverse.
Understanding bull markets: An introduction
A term that frequently captures the imagination of many investors is "bull market." It usually goes alongside good vibes and the stock market is optimistic.
The terminology "bull" and "bear" markets is believed to originate from the way each animal attacks, reflecting their respective market trends: bulls pushing upward and bears swiping downward.
The terminology "bull" and "bear" markets is believed to originate from the way each animal attacks, reflecting their respective market trends: bulls pushing upward and bears swiping downward.
DEFINITION
What is a Bull market?
It is a sustained increase in market prices and optimism among investors.
It is a sustained increase in market prices and optimism among investors.
But what precisely constitutes a bull market, and how does it differentiate itself from its counterpart, the bear market?
While a bull market denotes rising prices, a bear market is characterized by falling prices, reflecting pessimism and economic downturns. The two are opposites.
Want to learn more about the Bear market? Head out to our Bear market guide.
Some people assign a ‘technical definition of a bull market’ defined as a rise of 20% or more from recent lows across a wide array of securities.
Probably the biggest issue for investors to grapple with is that the duration of a bull market can vary significantly, from a few months to several years. So it’s not like you know when it starts and begin buying stocks and then can foretell when it will end and start to sell your stocks - if only it were that easy!
A bull market’s longevity is influenced by a myriad of factors, including economic policies, investor sentiment, and global events.
Want to learn more about the Bear market? Head out to our Bear market guide.
Some people assign a ‘technical definition of a bull market’ defined as a rise of 20% or more from recent lows across a wide array of securities.
Probably the biggest issue for investors to grapple with is that the duration of a bull market can vary significantly, from a few months to several years. So it’s not like you know when it starts and begin buying stocks and then can foretell when it will end and start to sell your stocks - if only it were that easy!
A bull market’s longevity is influenced by a myriad of factors, including economic policies, investor sentiment, and global events.
Examples of bull markets in the FTSE 100
The FTSE 100, a barometer of the UK's financial health, has experienced several bull market phases, characterized by sustained increases in stock prices. Two notable periods underscore how different sectors have led gains due to various economic factors.
Source: TradingViewExample
Bank stocks in the late 1990s
First, consider the late 1990s to the early 2000s, a time when the financial sector, particularly banks, significantly contributed to the FTSE 100's bull market.
During this era, the landscape of banking was evolving with the rise of securitization, which allowed banks to convert various types of debt into securities that could be traded. This innovation led to increased liquidity and potentially higher earnings for banks, as they could now sell their loans to free up capital and make new loans.
As a result, bank stocks surged, buoyed by robust earnings growth and the optimism surrounding these financial innovations. Investors keenly watched the FTSE 100 as bank shares climbed, reflecting the sector's strong performance and driving the index upwards.
First, consider the late 1990s to the early 2000s, a time when the financial sector, particularly banks, significantly contributed to the FTSE 100's bull market.
During this era, the landscape of banking was evolving with the rise of securitization, which allowed banks to convert various types of debt into securities that could be traded. This innovation led to increased liquidity and potentially higher earnings for banks, as they could now sell their loans to free up capital and make new loans.
As a result, bank stocks surged, buoyed by robust earnings growth and the optimism surrounding these financial innovations. Investors keenly watched the FTSE 100 as bank shares climbed, reflecting the sector's strong performance and driving the index upwards.
Example
Mining stocks in the mid 2000s
A second illustrative period occurred during the commodities boom in the early to mid-2000s, when mining companies experienced a significant upswing.
The global demand for commodities like oil, metals, and minerals soared, largely driven by rapid industrialization and urbanization in emerging economies, especially China. Prices for these commodities rose sharply, benefiting mining companies with operations worldwide, including those listed on the FTSE 100. As these companies reported higher earnings and optimistic forecasts, their stock prices climbed, leading the gains in the index.
A second illustrative period occurred during the commodities boom in the early to mid-2000s, when mining companies experienced a significant upswing.
The global demand for commodities like oil, metals, and minerals soared, largely driven by rapid industrialization and urbanization in emerging economies, especially China. Prices for these commodities rose sharply, benefiting mining companies with operations worldwide, including those listed on the FTSE 100. As these companies reported higher earnings and optimistic forecasts, their stock prices climbed, leading the gains in the index.
Things that happen in a bull market
During a bull market, certain sectors and stocks tend to perform exceptionally well, reflecting the underlying economic strength and investor confidence that characterizes such periods.
Historically, bull market stocks often include those from industries such as:
Historically, bull market stocks often include those from industries such as:
- Technology
- Consumer discretionary
- Financials
These sectors tend to benefit from robust economic conditions as businesses invest in technology, consumers spend more freely, and financial institutions enjoy the fruits of increased investing and lending.
Conversely, bull market stocks usually don’t include more defensive sectors like:
Conversely, bull market stocks usually don’t include more defensive sectors like:
- Utilities
- Consumer staples
These tend not to experience the same level of growth. These industries are typically less sensitive to economic cycles, and while they provide a degree of stability, their growth potential in a bull market is more limited compared to the high-fliers.
Note:
It’s worth approaching bull market stocks with a critical eye. Not all stocks that rise during a bull phase are sound investments; some may be subject to speculation or overvaluation. And while certain sectors may lead the charge in a bull market, individual stock performance can vary widely based on company-specific factors.
What triggers bull markets? Unveiling the causes
Each bull market seems to have a life of its own, distinct from the ones that went before it but there are also common denominators that seem to underpin most bull markets. Naturally the things that are the hardest to predict tend to have a bigger influence.
1. Economic recovery and growth
One of the primary drivers of bull markets is a strong or recovering economy. Indicators such as GDP growth, employment rates, and consumer spending can foster investor confidence.
When the economy shows signs of robust health or recovery from a downturn, investors tend to be more optimistic, driving up stock prices and heralding the onset of a bull market.
When the economy shows signs of robust health or recovery from a downturn, investors tend to be more optimistic, driving up stock prices and heralding the onset of a bull market.
2. Easy monetary policy
Central banks play a crucial role in shaping market sentiments. Low-interest rates and quantitative easing are tools used by central banks like the Bank of England to stimulate economic activity.
Such policies can make borrowing cheaper, encourage spending and investment, and boost stock market performance, contributing to bull market conditions.
Such policies can make borrowing cheaper, encourage spending and investment, and boost stock market performance, contributing to bull market conditions.
3. Technological innovation
Breakthroughs in technology or sectors experiencing rapid growth can also trigger bull markets. Investors eager to capitalize on these innovations may pour funds into related stocks, propelling market indices upward.
For example, the tech-driven bull market of the late 1990s was significantly influenced by the dot-com boom.
For example, the tech-driven bull market of the late 1990s was significantly influenced by the dot-com boom.
4. Bullish market sentiment
Bull markets are often supported by positive market sentiment. As stock prices increase, media coverage starts to grow and success stories multiply, drawing more investors into the market not wanting to miss out on any gains and thus perpetuating the upward movement.
5. Worldwide events
National markets can also be affected by international events. For example, the easing of geopolitical tensions or trade agreements can raise confidence in the market leading to a bull run.
The 2024 bull market: Start of the AI era
Everybody has been raving about artificial intelligence (AI) technologies, and that has led to an ever-increasing dominance of leading tech firms in the 2024 bull market. These companies have produced potentially revolutionary results from their AI tech, creating substantial revenue surpluses that have a dramatic influence on financial trends.
Several AI leaders led by Nvidia (NVDA) and Microsoft (MSFT) significantly impacted the 2024 bull market. Their share price growth related to progress made in AI has attracted significant interest from investors, which has seen other stocks join suit as they set new standards for innovation and financial performance.
A major factor is this earnings growth rate for these players. Their earnings figures have encouraged trust among potential investors who now realize that a new AI-based economy has huge potential for these companies and those that best use their products.
Another key factor about this year's market is monetary policies stabilizing, most importantly the apparent end to the Federal Reserve's rate increases. This step has reduced concerns among investors regarding higher costs and recession, thereby facilitating equity investment while also continuing the momentum of a bullish rally.
Several AI leaders led by Nvidia (NVDA) and Microsoft (MSFT) significantly impacted the 2024 bull market. Their share price growth related to progress made in AI has attracted significant interest from investors, which has seen other stocks join suit as they set new standards for innovation and financial performance.
A major factor is this earnings growth rate for these players. Their earnings figures have encouraged trust among potential investors who now realize that a new AI-based economy has huge potential for these companies and those that best use their products.
Another key factor about this year's market is monetary policies stabilizing, most importantly the apparent end to the Federal Reserve's rate increases. This step has reduced concerns among investors regarding higher costs and recession, thereby facilitating equity investment while also continuing the momentum of a bullish rally.
Bull market investments: Pros and cons
| Advantages of bull market investments |
Asset appreciation | Bulls offer opportunities for capital gains that are significant enough for a majority of people looking forward to gain highest possible returns from investing in stocks or other assets such as mutual funds, bonds or even real estate before retiring. |
Economic growth | Generally, bull markets correspond with rapid economic developments; therefore, there are more possibilities for investors’ benefit due to company expansions, rising consumer spending that translate into improved earnings and stock prices. |
Investor confidence | The optimism associated with a bull market can become self-fulfilling. As a result of this, investors who see their assets grow in value might feel more confident about investing more capital which in turn will boost the overall securities marketplace. |
| Potential Drawbacks of Bull Market Investments |
Overvaluation risks | One of the main issues during such bullish times is overpaying for assets. At elevated prices, stocks may be valued above their intrinsic worth, therefore attracting those participants that are late to the game - often the ones who lose money once the ‘bubble bursts’. |
Volatile markets | Even though they increase in value over long stretches, bull markets are still punctuated by moments of volatility where corrections could occur suddenly upon events like news releases or macroeconomic indicators. |
Complacency | Long bull runs can make investors think that the trend will go on forever making them complacent because they aren’t afraid anymore they will miss the next rally or get hit hard by a downturn when it happens. |
Investment strategies: Buy and hold in bull markets
Buy and hold refers to investing whereby an investor buys shares or other types of securities and holds onto them irrespective of short-term market fluctuations.
It’s all about capitalising on the principle of ‘Time in the market rather than timing the market’.
It’s all about capitalising on the principle of ‘Time in the market rather than timing the market’.
What is Buy and Hold investing?
Buy and hold investing means holding onto investments through various market cycles so that you can benefit from the overall upward trajectory of the market.
The logic of buy and hold investing becomes particularly compelling in a bull market, where the general trend is for stock prices to rise.
If stocks are going up all together, it may often be wiser simply to keep your position unchanged and go with the flow, rather than making efforts to time entries and exits by buying at low prices and selling at high ones. You can miss significant parts of the upward movement by frequently trading, especially where (as usually happens) you get out too early or back in too late.
If stocks are going up all together, it may often be wiser simply to keep your position unchanged and go with the flow, rather than making efforts to time entries and exits by buying at low prices and selling at high ones. You can miss significant parts of the upward movement by frequently trading, especially where (as usually happens) you get out too early or back in too late.
Source: Trading 212 appAlternatively, sideways or bearish markets could be called ‘stock picker’s markets’. In this type of market, there is no clear direction in the overall market so investors can therefore make entries or exits on a case-by-case basis based on certain factors or individual performances.
In short, while buy-and-hold investing strategy works best when there is an overall positive trend in the stock market, it acknowledges that to attempt to time bullish trends is difficult. By staying invested, you avoid trying to predict what will happen next with stocks, which often leads to poor investment choices.
In short, while buy-and-hold investing strategy works best when there is an overall positive trend in the stock market, it acknowledges that to attempt to time bullish trends is difficult. By staying invested, you avoid trying to predict what will happen next with stocks, which often leads to poor investment choices.
Recap
A bull market reflects a period marked by increasing stock prices driven largely by economic recovery together with rising investor confidence and favourable monetary policy. The FTSE 100 has seen periods of rapid growth such as when banks have securitized assets or when commodity prices have boomed for mining companies.
Such markets favour buy-and-hold strategies owing to their long-term nature rather than timing your move on the stock exchange. Understanding why bull markets arise i.e. advances in technology and shifts within economic indicators are important if these periods are to be navigated successfully by investors who wish to exploit opportunities whilst still appreciating the always-present risk.
Such markets favour buy-and-hold strategies owing to their long-term nature rather than timing your move on the stock exchange. Understanding why bull markets arise i.e. advances in technology and shifts within economic indicators are important if these periods are to be navigated successfully by investors who wish to exploit opportunities whilst still appreciating the always-present risk.
FAQ
Q: Is a bull market good or bad?
Typically, stock prices rise during a bull market period, reflecting economic strength and investor optimism. However, it may also indicate overvaluation and consequently lead to market corrections.
Q: How to benefit from a bull market?
Investors can take advantage of a bull market by investing in stocks or funds that are likely to appreciate. Buy-and-hold strategies tend to work well here as they go with the upswing of the overall market.
Q: Why do bull markets sometimes falter and become bear markets?
Bull markets collapse into bears when there is an economic recession, monetary policy shifts, political unrest, or excessive speculative behaviour driving overheating and subsequent adjustments.
Q: What is a bull and bear market?
A bull occurs when financial asset prices are rising or anticipated to increase usually by 20% from a previous decrease, while a bear implies falling prices (down by at least 20%) with widespread despair leading to self-sustained downswings.
Q: Why are they called bear and bull markets?
These names were adopted because of the fighting styles of the animals; for instance, bulls direct their horns upwards whereas bears swipe downwards.
Q: Should I buy in a bull or bear market?
To time the market, you ought to consider your personal risk tolerance and individual financial goals rather than make decisions based on the state of the markets. Nevertheless, bull markets might provide opportunities for growth, whereas bear markets could represent opening up for purchasing assets which are undervalued.
Q: What does 20% bull market mean?
We can say a bull market is defined by the condition that market prices have gone up by at least 20% from recent lows. The idea is that a rise of this much means lasting positive investor sentiment and economic expansion.
Q: How long do bull markets last?
The duration of any given bull market can differ significantly: several months or even years depending on underlying economic conditions and investor sentiment.
Q: What's the longest bull market?
The longest ever sustained rally in US equities ran from March 2009 to March 2020 underpinning post-recession recovery and spanning almost eleven years in total.
Q: What comes after a bull market?
A typical scenario would involve either a bearish reversal or an adjustment following such rallies; and this is usually seen in the form of sideways or declining prices which reflect a deterioration in economic indicators and investor mood.
- Defensive sectors: Industry groups—like utilities and consumer staples—that are less sensitive to economic downturns and typically experience steadier demand.
- Dot-com boom: A rapid surge in the value of internet-related businesses in the late 1990s, fuelled by investor excitement over emerging online technologies.
- Securitisation: The process of converting debts—such as mortgages—into tradable financial products, allowing lenders to sell them on to other investors.
- Overvaluation: When a share’s market price is higher than what underlying factors (like a company’s earnings or assets) would ordinarily justify.
- Quantitative easing: A monetary policy tool where a central bank buys bonds or other securities to inject money into the economy and encourage lending and investment.
