Bull Markets Explained: 4 Characteristics of a Bull Market

A bull market is a condition under which a financial market continually rises over a fixed period of time. In Wall Street stock markets such as the New York Stock Exchange and the NASDAQ, a bull market indicates a steady rise in stock prices. However, the term "bull market" can apply to any kind of financial market—not just stocks. Real estate prices, bond prices, and commodity trading prices all pass through economic cycles; they are called bull markets when prices rise over time.

The opposite of a bull market is a bear market. In bear markets, prices fall over a fixed period of time. The worst bear markets can lead to a market crash and even a financial crisis.

A secular bull market is an extended period of growth lasting over five years. Secular bull markets can have dips known as corrections, but despite this mild volatility, a secular bull market indicates sustained long-term growth. A cyclical bull market, on the other hand, is a much shorter period of growth lasting less than five years.

A few characteristics tend to foretell and accompany bull markets.

1. 1. High investor confidence: When investors feel bullish about market trends, they choose to make bolder investment decisions, pumping money into the market and helping it grow.
2. 2. Business profitability: Stock markets reflect the perceived business climate. When a business improves its bottom line, investors buy stock in that business. When a previously private business issues an initial public offering (IPO), investors will similarly choose to invest if they believe the business has charted a profitable course—all of which can grow a bull market. However, some businesses can be overvalued on paper, which can lead to market corrections or even bear markets. For example, overvaluation of various tech stocks caused the dot-com bubble of the early 2000s.
3. 3. Specific interest rates: When a central bank like the United States Federal Reserve lowers interest rates, stocks become a desirable investment and a bull market can ensue. When central banks raise interest rates, bonds can enter a bull market because they will pay a higher return on investment.
4. 4. Overall stability: Market indexes thrive when businesses are stable and predictable. Generally, when interest rates remain steady or when inflation keeps a reliable pace, stock brokerages oversee sustained buying. Following market crashes in the late 1920s and early 1930s, the federal government created various institutions like the Federal Deposit Insurance Corporation (FDIC) to help promote confidence and stability. This stability would help kickstart a sustained bull market following World War II.

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