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What Is a Bull Market? Here's What You Need to Know

During a bull run, it may seem like the sky's the limit for asset prices. Long-term investors love looking at their portfolios during bull markets because their purchasing power keeps climbing. However, since markets are constantly in flux, nobody knows when a bull run will end. Some cautious investors may see bull markets as a sell signal, while others may feel comfortable buying into a bull run. 

Whether you're interested in ETFs (exchange-traded funds), crypto, or stock prices, it's essential to know what a bull market is. If you know what to expect from a bull market, it's far easier to make logical decisions when managing your portfolio.

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What is a bull market?

A bull market is a time of sustained growth and optimism in financial markets. As animals, bulls always attack by raising their horns, which helps explain why they’re used as an analogy to represent massive market upswings. 

If a market is "bullish," it means prices are constantly rising, and there’s high investor confidence. There may be a few corrections along the way, but the overall trend of a bull market is up. 

Although many associate a bull market with the stock market, any asset class can go on a bull run. Bonds, precious metals, and Bitcoin (BTC) have all gone through bull cycles in the past. 

Characteristics of a bull market

Investors know they're in a bull market after seeing consecutive weeks of positive price momentum. However, you can use a few other metrics to figure out if you're in a bull market. Here are a few:  

  1. Greater risk appetite from investors: During a bull market, you'll find that people are more willing to put their money into speculative "risk-on" assets. These riskier assets don't have as long of a track record as blue-chip stocks or government bonds, but they have a greater risk-to-reward profile. A few examples of risk-on assets include tech start-ups, experimental pharmaceutical companies, and cryptocurrencies. 
  2. High demand and trading volume: Markets tend to experience higher overall trading activity during bull runs. It can seem like everyone is scrambling to buy up assets as they continue to climb upwards. Bull markets always have greater demand versus supply, elevated trading volume, and greater liquidity. 
  3. Lower interest rates: When central banks like the U.S. Federal Reserve lower interest rates, they usually trigger a bull run. Low interest rates mean it's cheaper for people to borrow money, which makes it easier for investors and start-ups to put more capital to work. Since interest rates significantly impact market conditions, you may hear investors say, "Don't fight the Fed!" 
  4. Robust economic indicators: Bull markets only last as long as the macroeconomic backdrop is positive. Investors need to feel confident the overall economy is healthy before a major bull run. Factors like a high gross domestic product (GDP), strong consumer confidence, and low unemployment increase the odds of a bull market. 
  5. Major market indices are above trend lines: Technical analysts pay careful attention to significant trend lines like the 200-day moving average to gauge a market's health. If prices on indices like the Dow Jones Industrial Average are above multi-day trend lines, they’re likely in a bull market. 

Bull market vs. bear market

When investor sentiment sours and prices start to tumble, a bull market can flip into a bear market. Every feature that characterizes a bear market is the opposite of a bull run. Asset prices in bear markets keep going down, and so do most investors' spirits. 

What is a bear market? 

There are far more sellers than buyers during a bear market, which translates to greater supply versus demand. Also, bear markets tend to coincide with broader macroeconomic challenges like high inflation, rising interest rates, and geopolitical tensions. Bear markets tend to correlate with weakness in the job market, low consumer confidence, and a falling GDP. 

During bear markets, investors usually sell off their riskiest assets and hold cash. Some may also gravitate to less-risky assets during bear markets, such as consumer staple stocks, blue-chip companies, or gold. 

How long do bull markets last? 

Nobody can predict how long a bull market will last. Bull runs can remain intact for many years if enough buyers are willing to enter the market. Most often, bull markets last longer than bear markets, but that’s not guaranteed. 

The length of a bull market depends on how long investors feel confident about the growth potential for their assets. Usually, it takes a major change in the geopolitical or economic backdrop to crash a bull market. Events like war, trade sanctions, or supply-chain disturbances can likely trigger a broad selloff, thus leading to a bear market.

Most investors wait for a 20% drop in the stock market before admitting the bull market is over. Technical analysts will often wait for major indices to dip below the 200-day and 50-day moving averages before declaring a bull market has switched to a bear market. 

Notable bull market examples

Now that you know the general bull meaning in the stock market, it may be helpful to look at a few examples of bull markets. 

  • Post-WWII bull market (1949-1956): After the Allies won World War II, the U.S. stock market rebounded in a big way. During 1949-1956, the S&P 500 rose roughly 20% each year. Not only were investors more optimistic, thanks to post-war peace, but there was also a considerable population surge during this time. 
  • Post-financial crisis bull market (2009-2020): After hitting the ominous level of 666 in 2009, the S&P 500 turned around and didn't stop climbing until the COVID-19 pandemic crash of 2020. To date, this is the longest bull market in recorded financial history.  
  • Post-COVID crypto bull market (2020-2021): Since crypto is a new asset class, it tends to have short and swift bull markets versus traditional finance. The crypto market cap grew from about $200 billion at the start of 2020 to a peak of $3 trillion at the end of 2021. However, as fears of a recession and Fed interest hikes spooked investors, the crypto market cap fell to about $1 trillion in early 2022.  

How does investing work in bull markets? 

Because bull markets are characterized by optimism and rising prices, they can attract a lot of emotional traders. Many people feel they need to jump into the hottest markets simply due to the "fear of missing out" (FOMO). 

As powerful as FOMO is during bull markets, financial experts always advise using logic rather than emotion to make financial decisions. While that doesn't mean people shouldn't buy during a bull market, they must have a clear investment thesis before jumping in.

Below are some common bull investing strategies people use to capitalize on bull trends:

  • Buy and hold: Most passive investors buy an asset they believe in and store it in their portfolio for the long haul. This investment strategy is most popular among people who want exposure to a bull market without monitoring daily price fluctuations. Investors who use the buy-and-hold strategy should feel confident that whatever they buy will appreciate in the coming years. 
  • Swing trading: To qualify as a swing trade, a trader should open and close a position within two weeks. Since the trend of a bull market is upward, it's more likely swing traders will open long positions during this market cycle. 
  • Day trading: Day trading is a more extreme form of swing trading. Instead of holding positions for a few weeks, day traders must open and close all their positions in one trading session. Day traders rely on technical charts and limit orders like "stop-loss" to manage their risk. 
  • Selloff: Cautious investors may want to profit off the gains in a bull market by selling off their holdings. If people feel like a bull market is getting too overheated, they may feel more comfortable sitting in cash and waiting for a better buying opportunity. 
  • Dollar-cost averaging: Investors who want to add to their buy-and-hold position may incorporate a dollar-cost averaging (DCA) into their strategy. DCA involves buying small increments of an asset over time. DCA aims to even out a person's cost basis rather than trying to time the market bottom. Many centralized exchanges allow people to set an automated DCA schedule to passively invest in stocks or crypto. 

Wrapping up 

Investors dream of extended bull runs. However, just because everyone jumps into a bull market doesn't mean it's risk-free. While there have been many multiyear bull markets, there's no knowing when conditions could reverse. Investors should do plenty of research before deciding when to enter a bull market. 

Due to crypto's novelty, it tends to rise and fall far sharper than equities or bonds. Also, since crypto isn't as regulated as the New York Stock Exchange, it can attract more scammers as retail investors get interested in crypto. If you’re new to buying and storing cryptocurrencies, you can seek guidance from a new company called Worldcoin. We aim to give a share of our crypto to everyone for free. Subscribe to our blog to learn more about topics such as centralized exchanges and crypto wallets.

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