Bull Markets Explained (2023): How They Work, How to Invest ✅ (2024)

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You’ve always heard you need to grab life by the horns.

This isn’t just good life advice, but this is good investment advice as well. Why? Well, because a bull market refers to a certain state of the stock market when, generally speaking, things are going well. 📈

Although the term bull market is generally used to refer to a market that is doing well, knowing whether to invest in a bull market isn’t always a cut and dry decision. Not to mention that a bull market isn’t always what it may seem to be.🎯

In fact, a bull market is not always a good thing depending on the factors that caused it. One prime example of this is the bull market of the pre-2008 period which was caused by issuing home loans to people who couldn’t afford to repay them. This led to the Great Recession in which many lost more money than they made from the bull market of the preceding 8 years.

The point is, what comes up—typically—must come down. So how can you know just what you should be doing during a bull market?

Let’s find out! 👇

What is a Bull Market? 👨‍🏫

A bull market is a condition of the stock market where prices of stocks are generally increasing over an extended period of time. A bull market, or the term bullish, can also be used to talk about a market that is expected to increase or rise in price in the near future.

The term bullish isn’t just used to refer to the stock market, however, and oftentimes you can hear bond traders, real estate investors, and currency traders using the same term.

Understandably, you may be wondering where this term comes from. Although there isn’t a clear etymology of the word available, it is generally thought that the terms bull and bear market derived their names from the ways each animal would attack threats.

A bear, when presented with a threat, would swipe its paw down. While a bull, on the other hand, would thrust a would-be attacker into the air. Thus the word bull is used for markets that are going up, and bear is used for markets that are going down.

Knowing how to recognize a bull market is important because it can help guide your investing decisions as you will want to invest differently in a bull market than you will in a bear market. More on this later.

What Makes a Bull Market? 🐂

Stock prices tend to fluctuate on a daily, sometimes hourly basis. So how do you know when it’s a bull market? This is actually a bit of a complicated question as different investors tend to classify a bull market differently.

Generally, a market is considered a bull market when there is a strong increase in GDP, stock prices(at least 20%), as well as a drop in unemployment for a period of 50 days. Also during this time, there will be increased demand for stocks, and investors will have positive feelings about the stocks they are buying.

While it can be easy to measure an increase in GDP and demand for stocks on the stock market, it can be difficult to measure investors’ moods. It’s also difficult to classify just how much of an increase in GDP there needs to be before a market is officially bullish. For this reason, bull markets tend to only be classified as such when they are long in length.

It is easiest to say that it is a bull market when it is clearly not a bear market. A bear market is a market that is experiencing a fall in prices and an increase in investor pessimism towards the future of their assets. So if the prices of your stocks are increasing over an extended period of time, you are likely in a bull market.

But it is important to note that the term bull market or bullish can also be used to refer to the price increase of a single stock rather than the market as a whole. For example, analysts at Wedbush securities were “bullish” on General Motors Stock.

Bull Market Phases 📚

When a bull market comes, all the action doesn’t just happen at once, rather there are phases it must go through. It is important to learn about these phases, and recognize them so that you can make good investing decisions when it comes to bull markets.

To help you understand easier, each phase is paired with what occurred in the 2021 stock markets following the COVID bear market of 2020.

Phase 1:

The first phase of a bull market is also the final phase of a bear market. It is at this point that prices have just reached an all time low. But because they are so low, investors are starting to see them as a deal of a lifetime and something that they should invest in.

This happened on March 23, 2020, when the world went into lockdown because of the COVID-19 pandemic. The stock market was just finishing a 33 day bear market, during which time prices had fallen almost 40%. Because of this, investors suddenly became interested in getting their stocks at what they saw as a great discount price.

Phase 2:

During phase 2 of a bull market, the prices begin to rise as investors begin to see the market in a positive light. Suddenly, people are buying stocks again. Some more cautious investors may wait for the more obvious phase three, but serious investors typically buy back in here. At this point it isn’t clear whether or not there is a bull market or a simple market rally.

In April 2020, the prices of stocks across the board began to rise. Even in companies that currently weren’t open or were operating under limited COVID terms. This was because investors saw the market in a positive light and began buying back in at a discount even though there was no end to the lockdown in sight.

Phase 3:

A bull market isn’t officially a bull market until prices have been climbing for over 50 days. (Note that they should rise significantly, at least 20% in this time). This period is also called the Golden Cross. This is when investors are sure that the market is going well and that the good times will hold.

The stock market officially crossed the 50 day requirement to be considered a bull market on May 12th, 2020 with 26% growth. One of the reasons the market continued to climb to meet this indication of a bull market was because of economic impact payments issued by the U.S. government. These gave money to Americans to spend on items that would impact stock prices.

There were also rumors of further economic impact payments to come. This kept investors spirits high and they continued to invest heavily in the assets they believed would bounce back the quickest after the pandemic.

Phase 4:

The fourth and final phase of a bull market is the bubble. This is where stocks have been at an all time high (and may even keep climbing!) but there is generally no further value to be had in assets. This leads to investors beginning to doubt that they can make any more money. Investors will begin to sell their stocks at this point, which can cause the bull market bubble to burst.

The bull market of 2020 had suffered a few corrections, but kept on growing. As of November 2021, investors considered the stock market to still be in a bull market, but they believed that it had entered the bubble stage. However, no one could truly predict when a bubble will officially pop at this, or any other point.

What Asset Types Do Well During a Bull Market? 📊

Investing in a bull market is much easier than investing in a bear market. But this doesn’t mean all assets are created equal and some assets will perform better than others depending on the type of bull market it is.

Stock Bull Market 💵

The bull market that most people are familiar with is the stock bull market. This is a bull market where the DOW, S&P500, and NASDAQ all rise at the same time, indicating a healthy economy.

During a stock bull market, stocks perform well. This is a good time to purchase stock in a company, as long as you research the company first. This is also a good time to invest in ETFs or index funds that encompass large parts of the blossoming market.

Bond Bull Market 🔗

A bond bull market is when bonds are giving investors a positive rate of return for at least 50 days. Because the rate of return on bonds is generally dictated by the Federal Reserve, an investment in a bond is generally seen as less risky than an investment in stocks.

Thus, investing in bonds is a good idea at any point during a bond bull market. Usually, bond prices are bolstered when there is uncertainty in the stock market and bond yields are better when interest rates are high. If interest rates are low and the inflation rate high—like in the post-pandemic markets—bonds are more of a measure of safety for your portfolio, rather than something that will net you notable returns.

Gold Bull Market 🥇

Like a stock bull market, a gold bull market is when the prices of gold continue to climb over a period of time of at least 50 days. Because gold is a physical commodity, it tends to hold value and is seen as a less risky investment. This means investors tend to invest in gold at any time, but it is most common to have a gold bull market during a bear stock market.

For this reason, although gold is usually considered a good investment during a bear market, it is also considered a good investment during a gold bull market with the thought that it will help to prepare your portfolio in case a bear market is imminent.

Secular Bull Market 📈

The final type of bull market is a secular bull market, and this is a term used to refer to a bull market that lasts for over 25 years. Secular bull markets can have price corrections of up to 10%, or even small bear markets within them, but the general trend upwards is not disrupted.

During a secular bull market, it is usually the entire economy that is on an upwards trend. Thus, an investment in any asset is generally considered a good investment as long as you plan to hold them for an extended period of time.

Although the United States has experienced a couple large crashes in the last couple decades, there is much belief that overall, the U.S. stock market is in a secular bull market. This is because, when you look at the rate of return since 1900, it is still moving in a positive direction despite crashes and investors are experiencing a higher rate of return as time goes on.

How to Invest in a Bull Market 🏗

It’s natural to think that investing in a bull market is a bad idea because assets tend to be overvalued during a bullish period. Even though this is true in many cases, trying to time the market (as in, waiting for a bear market) is a bad idea because you never truly know when the market has reached it’s ceiling.

Instead, you can continue to invest during a bull market, you just need to be mindful of how you do it. Generally, you should invest in assets that you believe will have long-term growth during a bull market.

You do this because, as mentioned above, you are never sure where the bubble is. You are also unsure when the market will crash. Thus, the best way to invest during a bull market is to pick assets that you believe will do well over the next 5-10 years regardless of what is happening in the here and now.

There are a few things you can do as you invest in a bull market however, that will help you to be more likely to end up ahead regardless of how the market performs.

Dollar-Cost Averaging 💰

One of the best ways to invest in a bull market is to make repeated investments at certain intervals in the same asset through a method called dollar-cost averaging. This way you will buy X dollars-worth of an asset at different times, and over time, minor market corrections, or even small bear markets, should iron out any inconsistencies and leave your portfolio with a generally positive return—as long as you take the time to pick the right stocks!

Diversify 🧮

Never put all your eggs in one basket. Even during a bull market, this can easily backfire. You never know when one asset may go under. You should always have a diverse portfolio with at least a few different assets, some which perform well during bull markets, and some that perform well during bear markets.

For example, you can make the so-called “Dragon Portfolio.” Basically, this portfolio includes a mix of stocks (growth stocks, and safer, established stocks) along with gold and bonds. There’s a bit more detail to this, but essentially, the volatile stocks will grow a lot during bear markets, the safe stocks will grow slowly in most markets, and bonds and gold will give your portfolio a boost should a recession hit.

Hedge 🏆

Remember, the bubble stage of a bull market is only fun until the bubble pops. This means you should always have a hedge investment in case a bear market were to hit. The most popular hedge investment during a bull market is gold.

This is important for one more reason—and that’s leverage. If you own gold during a bearish stock market, you can trade on margin and buy undervalued stocks with borrowed cash, and put up your gold as very valuable collateral.

However, all borrowing like this carries a fair deal of risk, so it is not advised for casual, inexperienced investors. Nonetheless, it gives gold and other safe assets another, very bullish use.

The Dangers of Bull Markets ⚠

Has anyone ever told you that playing with a bull is dangerous?

Well, it is, because you are likely to get impaled at any time. And this is exactly what happens to bull markets (albeit rarely).

This is because, at any given time, the assets that are experiencing the bull market could come to be seen as overvalued by investors, and they could begin to sell their shares. This can cause a crash.

There is also a chance that something artificial has caused the bull market, as was the case in 2007 when the home loan derivatives market created a housing bubble. Or in 2020, when the bull market began because Americans received economic impact payments and spent them on stocks rather than buying more consumer goods and boosting the economy.

Also bull markets can often pave the way for bad stocks to get into the market—because investors are so fired up to invest, that they don’t do proper research. And when there are too many bad stocks on the market, you can end up with a crash like the 2000’s dotcom crash.

Either way, it can be difficult to gauge how secure a market is until it is too late. This is why you should always invest in a bull market with all the caution you would use to invest in a bear market, and remember to always diversify.

Famous Bull Market Examples 🌟

Bull markets are common and there have been many notable bull markets over the years. It’s a good idea to take a look at these historical bull markets and take note of what started and ended them—this way, you can be prepared as you head out into the world of investing in bull markets.

Post Great Depression 🚀

After the Great Depression, the world had a lot of healing to do. But thanks to some social programs created by FDR that led to job creation in the U.S., the bull market following the great depression lasted 57 months, and brought the S&P up a whooping 325%.

WWII 🧐

There is nothing like a war to create a bull market. This can be seen in April 1942, when the U.S. entered another bull market as the demand for labor and goods increased. As American women all over entered the workforce for the first time, the rose 158%. This bull market lasted for 49 months.

Reaganomics 📙

In 1982, President Regan introduced his economic plan called Reaganomics that was meant to get the economy moving again much like FDR’s New Deal. And moving the economy now was easier than ever because of the fact that the U.S. left the gold standard under Nixon in 1973.

This can be seen in the fact that this bull market lasted 60 months and sent the S&P soaring over 229% during the 5-year bull market.

Roaring 90’s 📆

The roaring 90’s are often referred to as the technological boom and are best known for preceding the dotcom crash of 2000. During this period, unlike previous bull markets, the market was driven by many new technology startups entering the market.

Unlike any bull market before, Americans could choose to invest in any technological startup they like. And because this was such a new concept, many Americans jumped on the hype-train without researching these new, cool tech startups.

Many of them turned out to be scams and outright bad companies, which is what led to the eventual crash. However, during this bull market, which lasted 113 months, the S&P rose a whooping 417% which makes this the most impressive bull run in history.

Housing Boom 💳

Most investors nowadays are intimately familiar with the housing boom, which is the bull market which followed the dotcom crash. This bull market was also somewhat falsely perpetuated, as it was occurring because of home loans being given left and right to lendees who had bad credit.

That being said, the bull market lasted for 60 months, and brought the S&P 500 up 102% before crashing in 2008.

As you can see, a bull market can happen for any number of reasons, some false, some perpetuated by the government, but they all have one thing in common—and that is that you never truly know when they are about to crash.

Final Thoughts 🚩

Bull markets are an amazing thing, and when their power is harnessed properly, they can do wonders. But just like their namesake, bull markets are an unpredictable creature and you never know when their mood will change for the worse

For this reason, although it is advised to invest during a bull market, you should do so with caution, and be sure that you mindfully diversify your assets. And remember to always research the quality of your investments before you put your hard-earned money on the line, after all, you wouldn’t want history to repeat itself.

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All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.