Bull Markets – A Comprehensive Guide to Success

An infographic that explains what a bull market is, the differences between a bull and a bear market, and the different stages of a bull market.

In the world of investing, the question often asked is, “are we still in a bull market, or is this the beginning of a bear market”? Unfortunately, there is no easy answer to this question. The terms “bull markets” and “bear markets” describe stock market trends in this case. However, this terminology also applies to market trends in many other asset classes such as real estate, bonds, commodities such as gold, and foreign currencies. Also, it can be used to describe the market as a whole or a market sector.

The U.S. stock market fluctuates continuously, and market upturns and downturns are normal. Predicting when changes in the stock market will occur is the key to being a successful investor. Therefore, a full understanding of the stock market cycle is essential.

The market can turn into a bull market or a bear market dependent on the percentage change of the financial market’s upward or downward trend,

A bull market is the market condition in which prices are continuously rising and is considered a good thing for investors. A bear market is the opposite and happens when stock prices are continuously declining. A bear market is often considered a bad thing for investors; however, it is possible to make money in a bear market.

What Is a Bull Market?

Typically, a bull market refers to a market condition in which a large portion of security prices are rising. This should be the case for an extended period of time. The most commonly used definition of a bull market is when major stock market indexes like the S&P 500 and the Dow Jones Industrial Average (DJIA) rise at least 20% from their low and continue to grow. Conversely, a bull market generally ends when stocks draw down 20%.

Bull markets can last a long time, sometimes for many years, and are always followed by a bear market. In a bear market, major stock indexes prices drop by at least 20% from a recent high and will stay down for a minimum of two months.

Bull and bear markets are part of the stock market cycle and are leading indicators for the economy and the economic cycle. The start of a bull market is often an indicator that the economy will start to recover shortly. As a result, consumer optimism increases, and an economic uptrend is imminent. Conversely, the start of a bear market will point towards a future downtrend in the economy.

An infographic that shows that the stock market cycle can be a leading indicator for the economic cycle. Meaning a strong growing stock market often indicates a recovering growing economy.

It is challenging to identify when exactly a bull market starts. Its start is often not obvious until the market has been upward (bullish) for a while.

The terms “bull” and “bear” possibly stem from how these animals attack their opponents.  A bull thrusts its horns up while a bear swipes its paws down to try to incapacitate its enemies. These swiping actions represent the movement of a market. When there is an upward trend, it’s a bull market, and when the trend is downward, it’s a bear market.

Understanding Bull Markets and What Causes Them

Bull markets are often characterized by consumer optimism, investor confidence, and high economic expectations. These are often followed by the expectations that strong positive results should continue for an extended period of time. Thus, while it might be difficult to predict consistently when the market trends might change, psychological effects and speculation contribute to the changing market conditions.

Although there are no precise metrics to identify a bull market, there is a common definition. A bull market starts when stock prices rise by 20%, usually after a drop of at least 20%.

Identifying the signs of a new bull market can help you plan your investment strategy for maximum profits. The earlier you recognize the start of a bull market, the higher your returns will be because you can buy stocks when prices are still very low.

Here are some of the signs that might indicate that the market is entering a new bull phase:

  • Interest rates are low.
  • Consumer confidence is turning positive.
  • Major U.S. stock market indexes such as the S&P 500, Dow Jones Industrial Average (DJIA), and the NASDAQ show new highs and higher lows.
  • Cyclical and tech stocks are rising.
  • Industrial production is slowly starting to increase.

secular bull market is a long-term stock market trend that can encompass several bull market cycles. They often last between 5 to 25 years. In a secular bull market, stocks rise more than they go down, resulting in a net increase in stock prices.

The most famous secular bull market happened between 1983 and 2000. Although there were several bear markets during this time period, such as the DOTCOM burst in 2000, the overall trend was a bull market during which a lot of money was made. A bull market can experience a market correction by dropping 10% and then resume an upward swing without ever entering a bear market.

Stages of a Bull Market

A typical multi-year bull market in the United States consists of three stages. The first stage is the recovery from the bear market’s lowest lows. The second stage shows a steady improvement in the stock market. The third stage is the speculative stage.

Here is an explanation of a bull market’s 3 distinctive stages:

An imfographic that shows the different stages of a bull market.

Stage 1 – Accumulation: Normally, it is challenging to distinguish bull markets from bear markets at this stage. Very often, the buying psychology of consumer pessimism still rules at the beginning of the bull market. Very few people are even watching for the bottom of the market anymore. Just when they thought they finally found the bottom of the market, the market went even lower. This resulted in losses again during this counter-cycle rally.

Even when stock prices slowly increase, most investors are still in denial and believe it is just another short-term bear market rally and not the beginning of a primary bull market. However, this is when a small number of smart investors with patience begin to accumulate stocks, especially for the long haul. That is because, at this time, stocks are very cheap. After all, the demand is very low.

Warren Buffett was one of those smart investors in the summer of 1974. He bought stocks in this phase at a meager price and became rich. Of course, most people at the time thought he was crazy, but he proved them wrong!

As mentioned before, it isn’t easy to recognize this phase. When considering investing when you believe a bear market has reached its bottom, careful analysis is necessary at this stage to determine if the bear market is in a second movement or if a new primary bull market has started.

Stage 2 – Big Move: The second stage of primary bull markets is usually the longest phase, and during this time, business conditions improve, and earnings begin to rise again. This is when stocks will see their highest price increase, and investor confidence starts to increase. However, although most of the public is aware that stock prices are increasing, they are slow to invest because they remember their losses in the recent bear market and are worried that another market crash will happen again.

This stage is also called “The Wall of Worry” because most people who start investing in this stage are still worried. As a result, they do not feel good about investing yet, especially because usually the media makes them feel unsettled, worried, and unsure if they have made the right decision. Then, after a significant time period of consistent market gains, market participants finally start feeling a little better about the investment they have made. They start accepting that the market is in an upward trend because stocks have been going up for a while, and the minor dips were short-lived.

This stage is often the easiest phase to make a profit on an investment. Therefore, towards the end of this stage, participation is broad.

Stage 3 – Excess: The third stage tends to last longer than most people expect and reaches higher highs than most people anticipate. It is the stage of speculative excess, and the public is fully involved in the market. Excessive valuation and confidence are at an all-time high. New investors join the crowds because prices are still going up. Making money with investing seems easy, the future looks great, and everyone is euphoric and believes that this stage will continue a little while longer. Due diligence is hard to find, and complacency has taken its place.

Markets do not go up in a straight line. There will be minor corrections, but the main attitude is not to miss a speculative rise.

However, when most investors have jumped aboard the investment train, a problem starts to occur. There are not enough new investors anymore, bidding up the stock prices. So now the market starts to slow down. Sometimes bull markets end with a crash, while sometimes, they lose speed slowly as they top out and start to head down.

Even when the market starts going down, people will believe that it is just a temporary setback. This mentality was apparent at the end of the DOTCOM bubble in March of 2000. Investors kept “hoping” the market would come back and stayed invested. Unfortunately, many of them rode the market down and lost almost all of their money.

Investment Strategies in Bull Markets

Buy and Hold: This is one of the most basic and well-known strategies in investing. This strategy refers to buying a security and holding onto it for the long term. Then, you wait and sell it at a later date at a higher price despite volatility. This strategy is based on the belief that the price of the security will rise at some later date.

Buy and Hold is a passive investment strategy. Investors who follow this strategy do not sell after a decline in value, nor do they engage in market timing. Warren Buffett and Benjamin Graham swear by this Buy and Hold strategy.

Increased Buy and Hold: The increased Buy and Hold strategy is a variant of the standard Buy and Hold strategy. However, it does involve additional risks. This strategy’s premise is that an investor will continue to buy more securities as long as the price increases. They can do this by buying a fixed quantity of shares for every stock price increase of a pre-set amount.

Buy Low and Sell High:  Buying and selling is a natural part of a bull market. However, few investors can accurately time the market and enter a bull market too late when few profits are to be gained. Other investors may hold on to stocks way too long because no stock continues to rise forever. Instead, investors should set price targets and use stop-orders to automatically lock in profits when a stock reaches its target price.

Retracement Additions: In bull markets, retracements are short-term periods of stock price declines, followed by a return to the bullish trend. During this time, investors may opt to buy stocks at a low price while presuming that the bull market will continue and the stock prices in question will continue to move back up. This will retroactively provide investors with a discounted purchase price.

Full Swing Trading: This is an aggressive approach to capitalize on bull markets. Investors will take a very active role by using multiple techniques to squeeze out maximum gains. Swing trading is a short-term strategy used by traders to buy and sell stocks whose technical indicators suggest an upward or downward trend soon, generally one day to two weeks.

Bull Market History

An infographic that shows the most recent 14 bull markets - when they started, their average length, and their returns.

Recovery from the Great Depression (1932 to 1937): The Great Depression was one of the deepest recessions in modern American history. The Composite Price Index, a predecessor to the S&P 500, fell 86% between September 1929 and June 1932. However, it soon followed with a  325% gain over the next five years. This was due to President Franklin Roosevelt’s New Deal, which helped create massive government spending programs to stabilize the economy.

World War II drives economic activity (1942 to 1946): Once the US entered WWII, American factories ramped up the production of tanks, machine guns, and fighter planes. In addition, women were encouraged to take over manufacturing jobs as men went abroad to fight. As a result, the S&P 500 increased by 158% between April 1942 to May 1946.

The post-war economy booms (1949 to 1956): Post WWII, the US enjoyed an era of prosperity. At the same time, President Dwight Eisenhower focused on balancing the federal budget. As a result, consumerism flourished, largely due to the idea of the big American Dream. This helped the S&P 500 increase by 266% between June 1949 and August 1956.

The Cold War ramps up (1957 to 1961): As the Soviet Union launched the first man-made satellite, American sentiment leaned more towards fear. This lead to a short-lived bear market, which eventually leads to a bull market. The S&P 500 enjoyed nearly four years of growth, gaining 86% between October 1957 and December 1961.

JFK aims to ‘get America moving again’ (1962 to 1966): President John F. Kennedy had promised to get America moving again. However, it led to a brief bear market known as the Kennedy Slide. Stocks eventually started picking up again in 1962. In 1963, the Kennedy assassination led to the stock market prices falling. The S&P 500 plummeted nearly 3% that day, and trading was shut down two hours early to honor JFK’s memory. Luckily, Wall Street rebounded swiftly, with the market recovering all its losses just days later. The market expansion lasted for nearly three more years.

The go-go years (1966 to 1968): This was the shortest bull market in modern American history, lasting only 2 years. However, the S&P 500 still managed to soar nearly 50% during the run. The stock market was boosted in part by a robust job market.

Investors buy the Nifty Fifty (1970 to 1973): In the early 1970s, McDonald’s, IBM, and Disney helped carry the American stock market to new heights. At the same time, investors piled into the Nifty Fifty, a group of the country’s largest and fastest-growing companies. The S&P 500 generated strong annual gains of over 23% on average during the bull market.

A modest bull (1974 to 1980): During this phase, the S&P 500 generated annual returns of just 14% on average, the weakest of the modern era.

Reaganomics (1982 to 1987): President Ronald Reagan cut taxes during this phase, sending the stock market soaring. The S&P 500 generated an average annual return of nearly 27% — the best since the Great Depression.

The Black Monday comeback (1987 to 1990): After Wall Street’s darkest day, known as Black Monday, the comeback proved to be just a blip for stocks. The S&P 500 rose 65% from December 1987 to July 1990, recording the second shortest bull market in modern history.

Roaring 90s (1990 to 2000): The end of the Cold War and the dawn of the Internet Age ushered an era of enormous prosperity. The S&P 500 rose over 400% due to robust economic growth and stable inflation. It remains the strongest bull market ever.

Housing boom (2002 to 2007): During this phase, sub-prime mortgage rates enabled more Americans to purchase homes. No down payment was required, and short-term “teaser” rates were available. At this point, the real estate market surged, and rising home values led Americans to spend aggressively.

Long, slow recovery (2009 to March 2020): This record-breaking bull market lasted over 131 months (nearly 11 years). This makes it the longest bull market in history. Although it lasted more than a decade, the bull market was driven by a combination of factors. These factors include slow but steady economic growth, record corporate profits, high stock prices, record low-interest rates, and a record-low unemployment rate of 4%. As a result, the S&P 500 gained over 400% in nearly 11 years. Then, on February 12, 2020, the Dow Jones Industrial Average also reached a record high at 29,551 points.

Unfortunately, on March 11, the stock market crashed. The Dow decreased by more than 20%, and the S&P 500 and the NASDAQ soon followed suit. Widespread fears spread over economic damage caused by the global spread of the coronavirus pandemic. As a result, businesses shut down, and millions of people lost their jobs due to Covid-19.


Increased government spending, a Covid stimulus package, and consumer optimism all helped the recovery in the last half of March 2020. A few months later, all 3 indexes had regained the value they lost, moving the market into bull territory. By the end of August 2020, the S&P 500 and the NASDAQ were up by more than 50% from their March 23 lows. Tech companies such as Amazon, Microsoft, and Alphabet profited disproportionally from the homebound lifestyle Covid imposed on people.

We are now in our second year of the current bull market. The first year of this bull market showed the best recovery on record. However, it is not clear if this second year’s growth will be as impressive.

At this point, the bull market conditions are unsure, given the ongoing pandemic. However, the reopening of the country, the effectiveness of the Covid vaccine, the large number of anti-vaxxers, and the current state of politics, will shed more light on the future economic forecast.

However, regardless of the current market situation, there’s no sure way to predict market trends, especially in times of turmoil. That is why smart investors invest their money based on the quality and fundamentals of the investment rather than on the underlying market psychology. A strong investment can do well even in a down market, while a weak investment can underperform in a growing market. Also, remember that long term, the stock market has always posted a positive return.

Vikram R
Vikram Raghavan is a value investor, technologist, and Finexy co-founder. In addition to stock market investing, Vik also invests and advises startups on growth marketing and product management. Vik's work is focused on themes of marketplaces, micro-entrepreneurship, marketing automation, and user growth. Previously, Vikram led product and growth teams at Overstock.com, focusing on efforts across acquisition, new user experience, churn, and notifications/email. He holds an MBA in Finance from Temple University and a B.S. in Computer Information Systems and Finance from Bemidji State University.