Bull market: definition and history

Glossary

What does bull market mean?

A bull market refers to a period where investors are optimistic and stock prices rise, often by 20% or more from a recent low point. In other words, the market is on the rise. When prices shoot up very quickly and strongly, this is called a ‘bull run‘. Another name for a bull market is a ‘stierenmarkt’ in Dutch.

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Where does the term bull market come from?

The term bull market originates from the English-speaking financial world and refers to the bull attacking its prey with its horns upwards. That upward movement symbolises rising prices and a positive mood among investors. This is why this phase is also called a ‘stierenmarkt’. There is even a statue of a bull on the Beursplein in Amsterdam.

Bullish: The meaning

Bullish refers to an optimistic expectation about the market or a specific investment product. Someone who is called bullish expects prices to rise. You can even be bullish even if there is no rising market yet. Conversely, a bull market can exist while some investors are hesitant (bearish investors).

The history of the bull market

Bull markets are not a modern phenomenon of Wall Street hypes or social media. They have existed for as long as there have been exchanges and stock prices. The most famous bull market took place in the 1920s, also known as the Roaring Twenties. During this period, stock prices rose due to (technological) innovations.

Another example is the bull market of the 90s in the United States. Stock prices rose due to strong economic growth and low inflation figures.

How does a bull market come about?

A bull market rarely arises from a single cause. Usually, it involves a combination of economic, financial, and psychological factors. Confidence plays the lead role in this.

1. Economic growth and consumer demand

A bull market can arise when the economy grows. Low unemployment and rising wages ensure that people have more money to spend and usually do so. As a result, companies grow and new jobs are created – a reinforcing effect.

2. Low interest rates

Low interest by central banks makes saving less attractive and investing more interesting. This can cause companies and people to invest. Optimism and risk appetite allow financial markets to grow.

3. Political policy

Political policy can also support a bull market by creating a favourable economic climate. This includes increasing government spending, tax cuts, and deregulation. Positive political signals increase confidence in the economy. Investors react to that news, which can further improve market sentiment.

4. Company profits

Strong company results are often the direct fuel of a bull market. Rising profits attract investors, which translates into higher prices. Analysts raise their expectations, and investors follow. That herd behaviour can strengthen the increase.

The characteristics of a bull market

You can recognise a bull market by a number of clear signals, namely:

• Long-term price increases: There are rising prices over a longer period (often 20% or more).
• Low unemployment: Companies invest in staff in order to grow.
• Company profits: Due to high profits, confidence in the market is also higher.
• More demand: There are more buyers than sellers due to the expectation that prices will rise even further.
• Positive investor sentiment: Investors are optimistic and willing to take more risk.
• Increasing trading activity on the exchange: Many investors are interested in stocks and are more active in the market.

How often does a bull market occur?

How often a bull market occurs cannot be said in advance. No one can predict exactly when a bull market starts or ends.

Yet we can look at the past to find out how many bull markets there have been. Historical research into the American S&P 500 index shows that between 1903 and 2016, there were twelve bull markets on this index, with an average duration of 8.1 years and a rising stock price of 387%.

Bull market vs. bear market

A bull market and a bear market (bear) are each other’s opposite. The terms bull and bear both describe the sentiment in the market. You can find the difference in the table below.

What does a bull market mean for investors?

For investors, a bull market means opportunities, but also temptation. Rising prices ensure that the value of your current investments increases and your portfolio grows. That optimism can provide confidence and make it easier to continue investing.

At the same time, there is a risk: in a bull market, investors sometimes pay too much due to speculation and herd behaviour. Nevertheless, it is possible to profit from a bull market through long-term thinking, diversification and not reacting to every temporary dip.

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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.