What is a Bull Market? 10 Things to Know About Bull Markets

For starters, they generally happen during periods when the economy is strong or strengthening. Bull markets are often accompanied by gross domestic product (GDP) growth and falling unemployment, and companies’ profits will be on the rise. In a bull market, the ideal thing for an investor to do is to take advantage of rising prices by buying stocks early in the trend (if possible) and then selling them when they have reached their peak.

Some of the best strategies investors can employ to protect their portfolios during times of uncertainty are with defensive plays, like those found in utilities, consumer staples, and healthcare stocks. It’s not uncommon for analysts and observers to call a «bull market» when prices rise 20% or more from a previous low. However, there are many definitions of a bull market, with some saying one cannot be confirmed until the previous high has been taken out. But by the time that point is reached, it may not last too much longer.

Eventually, however, higher rates choke off growth as inflation erodes the value of investment returns. Later, tech stocks tend to lead mid-cycle, and commodity-linked sectors, including energy and materials, often outperform at the end stages of the economic cycle. The most recent noteworthy bull run in the cryptocurrency market began in late 2020 and extended into early 2021 when bitcoin’s price rose from around $10,000 in October 2020 to over $60,000 in April 2021.

There’s really no agreement on when a bull market «officially» begins. Some say it’s when the market rises 20% off the bear-market bottom, while others contend it’s not a bull until the market regains its prior pin bar trading peak. The average bull market duration, since 1932, is 3.8 years, according to market research firm InvesTech Research. As noted above, the longest bull market in history ran for 11 years, from 2009 to 2020.

1. That left many investors bracing for a recession for months, but a remarkably resilient job market has kept the economy afloat.
2. The bull market that began in September 2001 is often forgotten because it was the shortest-lived bull market and generated the lowest S&P 500 return of any bull market in history.
3. But declining markets can seem like a ransacking bear on the loose – they destroy everything and make people lose confidence.

It is difficult to predict consistently when the trends in the market might change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets. As investor optimism increases, the demand for securities will outpace the supply, which drives up prices and causes the bull market to come to fruition.

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Between 1995 and its highest point in March 2000, the Nasdaq Index gained a whopping 400%. Traders can still lose a lot of money, even in the hottest bull markets. A lot of crypto traders saw massive losses because rather than take profits, they kept piling money in, refusing to believe the bull market was over. Increased spending over time builds up company performance, which again makes traders and longterm investors more confident.

Bears can charge, too, but they tend to destroy things, eating, rummaging and generally causing more damage than bulls. As we’ve already covered, bull markets largely mean asset prices go up. There are actually a few assets that tend to do worse in bull markets, and better when prices are down. Most bull markets – especially those in stocks – are backed by a strong economy.

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The stock market anticipates a recession, typically peaking six to nine months in advance of the onset of one. Making things even trickier, stocks sometimes anticipate recessions that never materialize. Also, stocks tend to perform well in the early days of higher rates and rising inflation; they signal a strengthening economy, after all. No, we’re not in a bull market just because the pundits on TV say we are.

Looking ahead, investors are now optimistic the Fed can pivot from rate hikes to rate cuts in 2024, opening the door for more upside to stock prices. For nearly three years, the Nifty Fifty led the S&P 500 to generate average annual gains above 23%, but valuations eventually became stretched. When President Richard Nixon relaxed price, wage and rent controls in early 1973, inflation surged and even the Nifty Fifty couldn’t keep the stock market from crashing. After eight months of gains, the S&P 500 finally entered a bull market in June 2023.

Small-cap stocks and value stocks may outperform

It was fueled by easy-money policies, relaxed lending standards, rampant speculation, unregulated derivatives, and irrational exuberance. Bullish investors identify securities that are likely to increase in value and direct available funds toward those investments. Regardless of what the market is doing, you should maintain a long-term focus to cultivate long-term wealth. While it can be a smart idea to invest when stocks are cheap, it’s unwise to try to time the market.

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. Because it’s impossible to tell when a market has reached its top from a ground-level perspective, it’s very difficult to foresee the turning point before you are in it. These signals aren’t reliable enough to guide investment decisions, Paré and Fernandez both say. Our partners cannot pay us to guarantee favorable reviews of their products or services.

Build these savings while you can so you’re ready for unexpected expenses or a downturn in the economy. Avoid trying to guess when the bull market might end and stay the course with your investment plan, which should have been built with the market’s highs and lows in mind. For more help navigating a bull market, consider speaking with an investment professional. If you are holding a bunch of speculative stocks and the market goes south, you’ll see outsized losses. Some of those losses may be temporary, but a downturn could also permanently change the outlook for smaller, less established companies. Economists had feared a severe recession was unavoidable after the Fed raised interest rates by more than five percentage points in less than 18 months.

Change in Economic Activity

The housing bubble was directly related to and possibly the root cause of the 2007–2008 financial crisis. Take a look at this chart of Apple stock, which tracks the share price from the end of the Covid-19 lockdown crash to the start of 2022. But if you want to be a successful trader, it’s definitely a topic you should put a lot of time and effort into studying. For the 52 weeks ended January 19, the best performing stocks in the S&P 500 included Nvidia, Meta Platforms and Royal Caribbean (RCL).

This lack of supply compared to demand can cause prices to go up, potentially until they hit the 20% threshold for a bull market. The best bull market investing strategy depends on your risk tolerance and timeline. Aggressive investors will heavily favor growth stocks, increasing the positions that rise the fastest. Most investors, however, will benefit from a more balanced approach. That can involve scheduled, budgeted investments in both growth and value stocks. Regular rebalancing and a long-term timeline can also help ease the transition and stress when the bull market eventually ends.

Characteristics of a Bull Market

You’d simply liquidate some of your stocks and use the proceeds to buy bonds. How those factors play out over the next 12 or https://forexhero.info/ 18 months is anybody’s guess. If you’re not sure what that mix should be, try the Rule of 110 for an age-based allocation.