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Bull markets: What they mean for your money

Not sure what bulls have to do with the financial world? The term is mostly symbolic — but bull markets can have significant effects on your investments. Read on to learn what a bull market is.

9 min read

Whether you want to invest in cryptocurrencies or company stocks, there’s a good chance that you’ll find yourself in a bull market at one point or another. That’s actually a good thing! Bull markets mean that stock values are going up. But what exactly is a bull market? Where did it get its name? And how can this kind of market trend affect your investments? Read on to learn more!

What is a bull market?

A bull market is a period in which stock prices rise. The market sentiment is positive, and investors are optimistic about how share prices will develop in the future. In French, this phenomenon is called “hausse,” which means rise. This makes sense – unlike “bull market.” So, where does that term come from?

Bulls are one of the two symbols of the stock exchange. You might have seen pictures of the bronze statues in front of the New York Stock Exchange, or spotted them on TV or in movies. Bulls have long, sharp horns, and when they attack, they thrust their horns up into the air. This is also what happens when bulls, symbolically speaking, are “in control” of the market — stock prices go up.

When are we in a bull market?

Price fluctuations are a natural phenomenon in the stock market. If you follow the news or regularly check market trends, you know that share values change almost constantly. However, if prices continue to rise for a long period of time, with an increase of 20% or more since the last low, the market shows a bullish tendency. If stock prices continue to rise despite minor fluctuations, and investors are optimistic about the future, those are signs that we’re in a bull market.

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What causes bull markets?

Bull markets often go hand in hand with economic growth. If the economy recovers from a period of stagflation or deflation and shows significant growth, this also has a positive effect on the stock market. The market sentiment is optimistic, productivity rises, the unemployment rate goes down, and purchasing power improves. Businesses make more profit due to increased sales, and company stocks grow in value. Both consumers and businesses have more resources available to make investments or buy stocks. Economic growth can also show up in specific sectors — for example, the tech industry — which, in turn, might affect the general market trend.

The financial policy of central banks also influences the stock market. The European Central Bank (ECB) had a long-standing zero-interest-rate policy. For many years, the ECB’s key interest rate was 0.00%, which meant that more money was circulating freely. Keeping your funds in savings accounts or instant access savings accounts didn’t yield much of a return (if any) because interest rates were so low. Therefore, stocks, ETFs, and real estate were more profitable ways to invest.  

The difference between bull and bear markets

As mentioned, the stock exchange has two symbols: the bull and the bear. The bear symbolizes a general decline in stock prices, as well as a negative view of the future market prospects. While bull markets are generally associated with rising prices and an optimistic outlook, bear markets stand for a downward trend and a pessimistic outlook. The French term is “baisse,” which means decline. Want to learn more about the opposite of bull markets? Then read our article on bear markets.

Both bull and bear markets are part of the natural cycle of the financial world. However, they can sometimes grow into much bigger phenomena. If investors’ future expectations are extremely pessimistic and stock prices continue to fall, more and more people may choose to sell their stocks, too. If no one wants to buy these stocks, this compromises the basic idea of buying and selling — and this can lead to a collapse of the stock exchange. Even bull markets can go too far. If stock prices continue to rise, more people seize the opportunity to make a profit. It’s not only stock prices that get a lift from a bull market, since higher demand leads to higher prices. The overall optimism also enhances people’s readiness to take risks. With more and more people investing their money in stocks, prices inflate, price “bubbles” start to form, and the stock market slowly overheats.

If people hold on to their stocks and keep them out of circulation, there’s less supply — which means higher prices. The growth rate increases exponentially, meaning that it increases quickly and steeply. You might be familiar with this pattern, as it also occurs in periods of inflation or hyperinflation. A stock’s price no longer reflects its actual value. If businesses fail, despite their extremely high stock prices, the whole situation may suddenly backfire. In the worst-case scenario, investors are afraid to see their money lose value, so they quickly sell off their assets. This leads to further decline in the stock value — and even more people start to panic. You can see how this leads to a price spiral: The more people sell their stocks, the more stock prices drop.   

What are the telltale signs of a bull market?

If your goal is to make a quick profit, your investment strategy is probably focused on the short-term and you prefer to observe market trends in real time. Bull markets are excellent opportunities for investors to grow their money in a short time. But timing is everything, right? So, how do you know when it’s a bull market? Although there is no clear definition of the beginning of a bull market, according to experts, an increase in stock prices of 20% or more for several consecutive months since the last low indicates we’re in a bull market. You might want to look at charts to see how markets have performed in the last three months to get a better idea.  

Another telltale sign is the general market sentiment. If demand rises, the share price also increases, which is positive for investors and shareholders. Then investors feel optimistic about the future, which translates into an even better performance of shares. You can also look for signs outside the stock market. Ongoing economic growth and low unemployment rates are usually also reflected in the stock market.    

Finally, an unusually high number of companies making an initial public offering (IPO) might also indicate we’re in a bull market. Companies often choose the time and day of their stock market launch based on future expectations. Positive market trends might mean an increase in capital due to higher stock prices, and businesses want to capitalize on that.

How long do bull markets last?

It’s not just about knowing when a bull market is emerging — you also want to know when it’s about to end. As we mentioned, bull and bear markets are part of a natural cycle, so they are always alternating. Keep in mind that a drop in prices doesn’t necessarily mean the bull market has ended. It might just be a minor market correction to prevent the market from overheating or price bubbles from forming.

When do bull markets end?

S&P Global Ratings (formerly known as Standard & Poor’s) analyzed the development of the S&P 500 index between 1942 to 2022. According to their research, the average length of a bull market is 4.4 years, with a cumulative profit of 155.7%. Bull and bear markets always happen in turns, but bull markets last significantly longer than bear markets. The longest bull market in the United States lasted 12.3 years, while the shortest was just 3.4 months.  

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Bull markets in the crypto world

Besides classic investments such as stocks and government bonds, cryptocurrencies have become increasingly popular for investors. So, is there a difference between stock and crypto bull markets?

Stock bull markets

Stocks are financial assets that are issued by publicly traded companies. When you buy a company’s stock, you usually get a portion of their annual profits, according to the company’s dividend distribution policy. You can even participate in the stockholders’ meeting and exercise your stockholder’s rights. Not every company is publicly traded — in other words, not every business chooses to go the route of an IPO. Usually, large corporations choose an IPO strategy to increase their available capital.

In a bull market, prices rise and a company’s capital supply increases — just like you profit from an increase in share value. However, bull markets describe the general stock price development, and individual companies might still perform poorly in a bull market. Benchmark indexes such as the S&P 500 are based on the performance of large companies and reflect the general market trend. If you hold shares of a company that doesn’t perform well, you don’t benefit much from a bull market.

Crypto bull markets

Cryptocurrencies follow a different logic than company shares. They are newly designed currencies based on blockchain technology and managed decentrally. When you buy cryptocurrencies, you don’t exchange your money for shares of a company, but for virtual coins. Bitcoin is the oldest — and currently still the strongest — cryptocurrency ever traded, but many new ones have been developed since Bitcoin was first launched. The crypto market has had several periods of significant growth in recent years, and many people wanted to capitalize on the opportunities that they saw. Still, stocks and cryptocurrencies do have something important in common: Even in a bull market, individual currencies might perform poorly. Plus, cryptocurrencies are extremely volatile, and a different set of rules apply to this relatively new market. It’s hard to tell exactly how long bull markets last in the crypto world.

Whether you want to invest in stocks or cryptocurrencies also depends on how willing you are to take risks. Some people made millions during a crypto bull market because they bought coins early and sold them at the right time. Professional traders monitor the market every hour or so to react quickly to market changes. That means the stakes can be high — something as simple as leaving a party late can lead to losing a huge amount of money. The same goes for stocks. You might yield high returns in the short run, but you also take on more risk. ETFs, real estate, or savings accounts are considered safer options because they’re designed for long-term investing.

No matter which investment strategy you prefer, make sure to get acquainted with the pros and cons of cryptocurrencies, company stocks, bonds, and more. And your learning doesn’t need to stop there! If you’re familiar with concepts such as bull and bear markets, you can make more informed decisions about investing your money or budgeting. Visit our blog for more helpful articles.

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