Equities
Bull Market
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A bull market is a period when stock prices are rising and market sentiment is optimistic, generally defined as a rise of 20% or more in a broad market index over at least a two-month period.
How a bull market is defined
The SEC's Investor.gov glossary defines a bull market as a time when stock prices are rising and market sentiment is optimistic, adding that a bull market generally occurs when there is a rise of 20% or more in a broad market index over at least a two-month period. The 20% threshold is a convention rather than a rule: it is measured from the closing low of the prior decline, and the bull market is usually dated from that low even though the label can only be applied after the 20% gain is confirmed. Broad indexes such as the S&P 500 are the usual reference, so a single sector or stock rising 20% does not make a bull market. Within a bull market, pullbacks of 5% to 10% and corrections of 10% to 20% can occur without ending it; the bull market ends only when the index falls 20% from its peak.
Hypothetical example: an index bottoms at 4,000 and must reach 4,800 to be called a bull market. If it climbs to 6,000, a 15% correction to 5,100 does not end it; a fall to 4,800, 20% below the peak, does. See bear market.
What bull markets mean for investors
Rising prices lift the value of existing holdings but also raise the price of every new dollar invested, so an investor adding money throughout a bull market buys at progressively higher levels. Valuation measures such as the price-to-earnings ratio tend to expand during long advances as investors pay more for each dollar of earnings, which means part of the gain comes from sentiment rather than profit growth and can reverse. Bull markets are dated with hindsight: the 20% gain that confirms one has already happened by the time the label appears, and no threshold predicts how much further prices will go or when the advance will end. Investors who set an asset allocation in advance often find their stock weighting drifts above target during a bull market, which is the situation rebalancing is designed to address.
Hypothetical example: a $100,000 portfolio split 60/40 sees stocks gain 40% and bonds 5%, so stocks are $84,000 of $126,000, a 67% weight. Model the drift in the portfolio concentration calculator.
Example
Hypothetical: an index that bottoms at 4,000 enters a bull market by convention once it closes at 4,800, a 20% gain; a later 15% correction would not end it, but a 20% fall from the peak would.
Bull Market — FAQ
What is Bull Market?
A bull market is a period of rising stock prices and optimistic sentiment, commonly defined as a gain of 20% or more in a broad market index over at least two months.
Can you give an example of Bull Market?
Hypothetical: an index that bottoms at 4,000 enters a bull market by convention once it closes at 4,800, a 20% gain; a later 15% correction would not end it, but a 20% fall from the peak would.
How long does a bull market last?
There is no fixed length. By the common convention a bull market runs from the closing low of the previous 20% decline until the index next falls 20% from its peak. Historical bull markets have lasted from under two years to more than a decade, and the duration is only known after the next bear market is confirmed.
What is the difference between a bull market and a correction?
A bull market is the broad upward trend, defined by a 20% or greater rise. A correction is a decline of roughly 10% to 20% from a recent high that occurs within that trend. Corrections do not end a bull market; only a fall of 20% or more from the peak does, at which point a bear market begins.
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