Clickable arrow icon In this article
6 Mins

What is a Bull Market?

A bull market is a market condition where the prices of securities rise or are expected to rise. It is a phase where the price of the securities rises 20%, which is preceded and succeeded by a 20% decline. In other words, this market is sandwiched between two bear markets. This market usually lasts for several months or years.

In the bullish market trend, investors are positive and have high expectations from the market. This is mainly because this market occurs when the economy is strong or in the recovery phase. With high growth in the gross domestic product (GDP) and low unemployment, businesses will be profitable. As a result, the share price of companies also goes up.

Though usually used for the stock market or shares, this market is applicable to all financial securities, including bonds, currencies and commodities.

Types of Bull Market

Every investor should be familiar with four types of bull market.

  • Stock bull market: in this case, the market will have higher highs and higher lows. It occurs when the economy is healthy. Investor sentiment is the main reason why the bull market exists. Apart from this, top-line growth (revenue growth), profit growth, and low P/E Ratio are the key drivers of this market.
  • Bond bull market: When the return from bonds is positive, it is called a bond bull market.
  • Gold bull market: When the price of gold continues to rise, it is known as a gold bull market.
  • Secular bull market: A secular bull market is a long bull market that lasts up to 25 years. It has several bear markets within it called primary market trends.

Causes of Bull Market

A bull market can be due to multiple reasons, and here are a few.

  • Economic conditions: Positive economic conditions like high growth in GDP, falling unemployment, low inflation, stable exchange rates, and high industrial productivity all drivers for this market.
  • Consumer spending: An increase in consumer spending indicates the economy is expanding. Consumers spend money when they have enough money at their disposal, indicating a rise in the standard of living as a result of low unemployment. This instils confidence among investors which leads to this market condition.
  • Corporate earnings: High growth in revenues and profits of the company also result in this type of market. When consumer spending is increasing, and economic conditions are stable, companies end up making higher profits which drives the stock market rally.
  • Government policies: Favourable government policies like a fiscal stimulus for growth and policies that lead to economic expansion will result in this rising market phase.

How to Identify a Bull Market?

A bullish market is a phase where the market witnesses higher highs every day for a period of two months. When the stock market rises 20% or more during this period, it is a bull market. There are several parameters that will help you identify a bull phase, and here are a few.

  • Nature of the rally: If the rally is a broad market-based rally and not just a sector-specific rally, then it is a bull market. Sometimes sector rallies form the basis of this market rally, but this is not always the case if only a few sectors perform well.
  • Volatility index: It measures the volatility in the market. It also tells by what amount the underlying index might fluctuate in the next 30 days. A high value on the index indicates investors are fearful. A low value indicates a more stable market and is considered good for investing.
  • Daily moving average: Another way to check whether the market is in its bull phase is to check the daily moving average (DMA). If the index is above its 200-day DMA, then it is a bull market. If the index is below its 50-day DMA or 200-day DMA, then the market is in its bear phase.
  • bond yields: When the bond yields are low, investors rush to put their money in the stock market to earn a higher return. This can be a sign that this market is starting.
  • Other factors: Apart from the above, low inflation, favourable monetary policy, and high liquidity are some other factors that will help identify this market phase.

How to Invest in a Bull Market?

One of the biggest mistakes you can commit is to time the market. You can either be right and earn huge profits or be wrong and end up making huge losses. The best strategy to follow is ‘buy and hold’. Buy and hold stocks long-term because markets always go up in the long term.

You can invest at regular intervals and benefit from rupee-cost averaging. This will help reduce your average cost of investing and accumulate greater units when the market is undergoing a correction.

Bull Market Vs Bear Market: Key Differences

While a bear market is a condition that results in an increase in the price of securities, a bear market leads to a fall in the price of securities. Following are the key differences between a bull and a bear market.

Point of DifferenceBull MarketBear Market
Rise/FallMarket rising 20% or more.Market falling 20% or more
EconomyRecovery and growth phase.Contraction phase.
Investment sentimentPositiveNegative
Gross Domestic ProductHighLow
Interest ratesHighLow
InflationLow, however, high demand for goods pushes the prices up.Peak; prices of essential goods are high.
CausesFavourable economic conditions
High consumer spending
Good corporate earnings
Unfavourable economic conditions
Low consumer demand
Low corporate earnings

Frequently Asked Questions

What marks the end of a bull market?

The bull market ends when the markets are overpriced, and the economy is contracting. Inflation is high, and consumer spending is at its peak. Also, if the markets are rising, despite a fall in individual shares, then the bull market is about to end.

How long does a bull phase last?

This market can last for an average of 3-4 years. The only exception is from 2009-2020, which was the longest bull phase so far.

What are the phases of a bull market?

This market has four phases, namely pessimism, scepticism, optimism, and euphoria. In the pessimism phase, the markets are gloomy and are at the end of a big downtrend. The volatility in the market is lower, and there is some short-term positive sentiment in the scepticism phase. In the optimism phase, the investor sentiment turns positive, and people are willing to invest in the market. In the last euphoric phase, making money becomes easy, and there is a lot of liquidity in the market, and all stocks perform well.

Discover More