Bull Markets Explained: Features and Historical Instances

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A bull market is a sustained period in which prices in a financial market are rising or are widely expected to rise. The term most often describes stocks. The most common working definition is a gain of 20% or more in a broad index from its most recent low. Bull markets also occur in bonds, real estate, currencies and commodities. In each case the defining feature is a persistent upward trend driven by strong demand and investor confidence, not a single good week.

How a bull market is measured

The 20% rule is a simple percentage change from a trough:

Gain from low = (Current level − Recent low) ÷ Recent low × 100

Hypothetical example: an index closes at a low of 3,000 after a long decline. Over the following months it climbs to 3,450. That is a 15% gain, so by the usual convention it is not yet a bull market. When it reaches 3,600, the gain is (3,600 − 3,000) ÷ 3,000 = 20%. Analysts would then say a new bull market began at the 3,000 low, not on the day the threshold was crossed.

That backdating matters. No official body declares a bull market, and by the time the 20% threshold is crossed, the first 20% of the move has already happened. The label describes the past, not what comes next.

Losses and gains are also not symmetrical. If an index falls 20% from 4,000 to 3,200, a 20% rise only brings it back to 3,840. It needs a 25% gain to return to 4,000. A new bull market can therefore be well underway while the index is still below its previous peak.

Commentators usually apply the rule to a broad benchmark such as the S&P 500 or the Dow Jones Industrial Average. Applying it to a single stock or a narrow sector says little about the overall market.

Key features of a bull market

Bull markets generally start when the economy is strong or strengthening. Rising GDP, lower unemployment and growing corporate profits give investors reasons to pay more for future earnings. Rising prices then attract new buyers, pushing prices higher still.

During a bull market, analysts and investors commonly observe:

• Higher trading volume, as more participants buy securities in pursuit of capital gains.
• Richer valuations, because investors pay more for expected growth. Metrics such as the P/E ratio can expand even when earnings per share grow more slowly than prices.
• Greater liquidity, with demand for securities strong and sellers comparatively scarce.
• Rising dividends, as profitable companies return more cash to shareholders.
• More initial public offerings (IPOs), since companies find it easier to raise capital when buyers are optimistic.

Bull market vs. bear market and other terms

Bear market. The opposite condition: a decline of 20% or more from a recent high, typically accompanied by pessimism and often by economic contraction. Bull markets overlap mainly with economic expansion, bear markets with contraction. Because stock prices reflect expectations, a bull market often begins before the economy visibly improves, and a bear market usually begins before a contraction is recognized.

Correction. A drop of 10% to 20% from a recent high. A correction can occur inside a bull market without ending it, as long as the decline stays short of 20% and prices resume rising.

Retracement. A smaller, temporary pullback against the main trend, common even in strong bull markets.

Bull run. An informal phrase for a strong upward move. It may describe a bull market, a short rally or a surge in a single asset such as a cryptocurrency, and it carries no fixed threshold.

Bullish. An attitude, not a market condition. An investor is bullish when they expect prices to rise, whether or not a bull market is underway.

Peak and bottom. The bottom is the low from which a bull market is measured. The peak is the high from which the next bear market is measured. Both are identifiable only in hindsight, so buying near a peak or selling near a bottom tends to produce the largest losses.

Strategies investors use during bullish markets

These approaches differ mainly in how much risk they add:

1. Buy and hold. Buy a security or index fund and keep it, aiming to sell later at a higher price. It requires no timing decisions.
2. Increased buy and hold. Keep adding to a position as its price rises, for example buying a fixed number of shares after each predetermined price increase. This raises exposure when prices are highest, so a reversal hits a larger position.
3. Retracement additions. Buy the dips within the uptrend. The risk is that a dip turns out to be the start of a bear market rather than a pause.
4. Full swing trading. Combine buying with short selling and other techniques to profit from swings in both directions. It demands active management and carries the highest risk of loss.

Notable bull markets in history

• The Roaring Twenties. A speculative rise in U.S. stocks through the 1920s that ended with the crash of 1929 and the Great Depression that followed.
• The 1980s bull market. Stocks climbed strongly from 1982 amid falling inflation and the economic policies of the Reagan administration. On Black Monday, October 19, 1987, the S&P 500 lost more than 20% in a single day.
• The 1990s and the dot-com boom. Rapid growth of the internet and technology companies drove a long advance from the early 1990s. It ended as the dot-com bubble burst in the early 2000s.
• 2009 to 2020. Beginning in March 2009, after the financial crisis, and ending in February 2020 as the pandemic hit, this was the longest bull market in the history of the S&P 500. The index gained more than 300%, supported by earnings growth, low interest rates and investor optimism.

These episodes show that bull markets can last for years but often end abruptly, frequently after valuations have stretched well beyond earnings.

Limitations of the concept

The bull market label is useful shorthand, but it has clear limits:

• It is backward-looking. A bull market is confirmed only after a 20% rise, and its end is known only after prices have fallen 20%.
• The threshold is arbitrary. A 19% rise and a 21% rise reflect nearly identical conditions, yet only one earns the label.
• Index-level gains can hide divergence. A broad index may rise while many individual stocks, or smaller companies, lag or fall.
• Nominal gains ignore inflation. A rising index during high inflation can deliver much smaller real returns than the headline figure suggests.
• It does not justify buying anything. Rising prices do not make every asset a good value, and stretched valuations increase the potential loss when the trend reverses.

FAQs

The Bottom Line

Investors deciding how to act in a rising market can treat the bull market label as a description of past gains with no forecast attached. Buy and hold carries less risk than adding to positions as prices climb or swing trading in both directions. Because peaks are clear only in hindsight and stretched valuations raise potential losses, rising prices alone are a weak reason to buy any asset.