Q

Q

What is a bull market?

A

A

A bull market is a market where value is rising, especially when investors expect value to continue rising in the future. The term usually refers to the overall stock market, but it may also be used for other markets, like the bond or real estate markets.

Derek Silva

Derek Silva

Published July 13, 2020

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KEY TAKEAWAYS

  • A bull market is a market that has experienced a sustained period of growth and is expected to continue its growth into the future

  • Investing while a stock is at a higher price may not be ideal because you get fewer shares (or less of a single share) per dollar, but a bull market can also mean high gains for an investor

The term “bull market” generally describes a market when its value is rising, but the term implies that investors expect the market’s value to continue rising. So a bull market is a market experiencing sustained growth, and not just a temporary increase in value.

A bull market usually refers to the overall condition of a stock market index, such as the S&P 500, Dow Jones Industrial Average, or Nasdaq composite. However, other markets can also be described as bullish. For example, it may be possible to say a bond market or the real estate market is a bull market, even if the overall stock market isn’t.

When talking about the overall stock market, a bull market is typically viewed as a sign that the U.S. economy is in a good position. Investor sentiment is a big factor in determining stock market value, so a bull market also shows that investors are confident in the long-term growth of stocks (or whatever other market you’re talking about).

The exact definition of a bull market may vary depending on what sources you read. Some people attribute a certain growth threshold to a bull market, like to say there’s a bull market once value grows 20% or more. This differs from a bear market, which is only used to describe a market after it has sustained losses worth a specific mnarket value — 20%.

What causes a bull market?

There is no single cause of a bull market, but a one results when publicly traded companies are performing well and investors expect thast to continue. For example, a period of low corporate taxes will generally result in higher profits, and if those tax conditions are expected to continue, investors will likely invest bullishly. This can be seen with the Tax Cuts and Jobs Act of 2017, which lowered tax rates for large corporations and high-income individuals.

How does a bull market end?

A bull market generally ends when the economy experiences a downturn or when large corporations have a difficult time growing. This is caused or accelerated by an external factor in some cases, like when the economic fallout from the coronavirus pandemic ended the 11-year bull market that started after the Great Recession. In other cases, a bull market ends because companies underperform or because investors are less willing to invest in new companies. For example, the bull market of the 1990s (the dot-com boom) ended in 2001 when many internet companies struggled or went bankrupt. (The terrorist attacks on Sept. 11, 2001, also accelerated the end of the dot-com era.)

Market downturns are difficult to predict — especially when caused by unexpected events such as the coronavirus pandemic — so it’s important to make sure that your investment plan during a bull market won’t leave you in a bad financial position should the bull market give way to a bear market.

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How to invest during a bull market

How exactly you invest during a bull market depends on your financial situation, but the U.S. stock market has increased in value over its life and many investors take a bullish stance on the stock market’s long-term prospects. That’s why many financial advisors suggest that even if the overall market is in a downturn or if certain sectors of the economy aren’t performing well, the best option is to invest in a diversified portfolio and expect that stocks will increase over the long-term.

One investment that may help you is an exchange-traded fund, or ETF, which often includes a diverse set of investments. The required minimum investment for an ETF is also just $1 with many services. A mutual fund can offer similar benefits, but it usually requires a minimum investment of $3,000 or more.

It’s worth remembering that a higher stock price means you will be able to afford fewer shares (or less of a partial share) for the same price. For example, $100 would buy you one share if the stock’s price is $100 per share, but you would only be able to afford a partial share if the stock’s price increased to $105. A higher price doesn’t necessarily mean you shouldn’t invest, but opting to buy a stock or fund only after its value has increased significantly may not provide the same level of returns you’d have gotten if you invested when the price was lower.

Learn more in our guide to picking stocks.

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Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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