Bull Market | Definition

Bull markets are difficult to track when it is happening. Therefore, when investing, you should not try to time the market but instead look for long-term investments.

If you’re trying to understand the stock market, you’ve confused the terms bull market and bear market. What do these terms mean? Why does the stock market go up and down? What causes a bull market? Should you invest differently? In this article, we’ll answer these questions.

A bull market is a period of time when the value of securities or assets is rising in general. It is also characterized by a general good feeling about the overall economy and financial markets; the opposite is a bear market.

Since stocks fluctuate daily, it is difficult to determine if you are in a bull market. Instead, bull markets are usually pinpointed after the fact. So why do assets increase in value? To understand why a bull market would happen, we need to understand the general stock market.

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How the Stock Market works

The stock market is an exchange of financial securities. A security is a certificate securing that you own something. This usually comes in the form of stocks, which is equity in a company, or bonds, debts owed by a company. People buy and sell stocks and bonds daily, trying to make trades for the best price. 

For example, the more people try to buy a particular stock, the higher it is valued. Then, as more people try to sell that stock, it decreases in value. In other words, the basic principles of supply and demand govern stock prices.

When the majority of people are buying, the majority of stock values rise in general. This general rise is called a bull market.

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What Causes a Bull Market?

So if people buying securities cause a bull market, why are they buying? What causes everyone to buy? There is no firm answer to this, but when we have a thriving economy, low unemployment, and confidence in the economy, investors tend to want to buy and hold securities for the long term, which is also called a buyer’s market. As people hold onto securities, they become more valuable, and now you have a bull market.

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Historic Bull Markets

The most recent example of a major bull market was from the bottom of the great recession in 2009 to 2020, when it dropped drastically due to the pandemic, and then again from 2020 to 2021, when it rebounded suddenly. These times of high growth are bull markets. Bull markets are much more common than bear markets in the stock market, as stocks typically increase in value over time. 

Bull Market Cautions

It can be really tempting to be swept up in the excitement of a bull market, so here are a few things to keep in mind.

• While bull markets are more common than bear markets, they do not last forever. The “You can’t lose” mentality can lead to loss if you’re not careful.
• It is nearly impossible to “time the market” so trying to buy at the bottom and sell at the top usually doesn’t work.

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