The period was characterized by historically low interest rates, highly leveraged balance sheets and subprime mortgage lending. “We think this bull market still has a ways to go and won’t be derailed by a potential mild, short recession https://forexhero.info/ over the next year,” Buchbinder says. After the October 2022 low point, the stock market was able to recover some of its losses in the fourth quarter. But that’s only the average length of a bull market — it’s not the maximum length.

It's important to keep in mind that bull markets don’t only happen when times are good. Bull markets may also emerge when a country is recovering from economic downturn, such as the bull market that followed the 2008 financial crisis. Now, let's talk about how you can mitigate those bull market risks. Four strategies to consider are staying disciplined with your investing approach, keeping a long-term focus, rebalancing regularly and, if needed, retaining a financial advisor. The stock market rally ran out of steam in 1961 as corporate earnings and dividend growth could not keep up with soaring stock prices.

  1. Had you traded short-term, at the wrong time, you could have lost money even when the stock was – overall – skyrocketing in price.
  2. This causes investors to keep their money out of the market, which, in turn, causes a general price decline as outflow increases.
  3. Higher profits and the expectation of still-higher profits can fuel investors’ expectations, causing them to bid up asset prices as long as the future looks bright.
  4. During these times, there is a strong overall demand for stocks, and the general "tone" of market commentary tends to be positive.

Bull markets can last for months or even years, and stocks tend to outperform other investments like bonds. A bull market occurs when asset prices rise significantly over a sustained period. Some analysts define a bull market as one which has risen 20 percent from its most recent low. A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value.

Editorial integrity

Then, with the help of massive fiscal and monetary stimulus, a new bull market emerged. You can control your own investing approach, but you can't control everyone else's. Less disciplined or more aggressive investors will undoubtedly dabble in more speculation during a bull market. If that trend takes over the investment community at large, it can create a market bubble. That's when stocks broadly are trading for more than they're worth. Even better, bull markets tend to last longer than bear markets—which means the gains keep coming.

Average investors need to maintain a long-term perspective during a bull market. Technically speaking, a bull market is defined as a 20% gain or more in a stock market index or an individual security. Contrast this with a bear market, which is a 20% or greater loss in a given market or security. Bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue for an extended period of time.

There is no governing body that says what it is, or decides when it started (as there is with a recession). But on Wall Street, there are two common ways the label gets applied. Many or all of the products featured here are from our partners who compensate us.

Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. understanding responsive web design Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

Understanding Bulls

It may indicate that more users are withdrawing their cryptocurrencies from exchanges, which could mean they are holding onto their assets for the long term by moving them to cold storage for safekeeping. Exchange inflows and outflows refer to the movement of cryptocurrencies into and out of cryptocurrency exchanges. For example, increased exchange inflows may indicate increased selling pressure and potentially bearish sentiment. It may suggest that more investors or traders are depositing their cryptocurrencies on exchanges, possibly to sell or trade.

Investor Psychology

Bull markets tend to last longer than bear markets and deliver returns that more than offset the losses in bear markets. So most investors should stick to a long-term investing strategy, and avoid trying to outguess the market as a short-term trader – or risk severely underperforming. A bull market is an extended period of time when stock prices rise and investors are optimistic.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Because investor psychology about market behavior affects the actual behavior of a market, bull runs usually end for one of two reasons. While much of what investors do is based on fundamental, technical factors and careful assessment, perfect predictions of the market are impossible. Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.

“Cash is usually the best hedge against a future downturn in the market, since it gives you money to buy when you see the market reverse,” Fernandez said. For reference, the S&P 500 currently has a higher-than-average PE ratio and a lower-than-average dividend yield. Paré says that valuation metrics such as PE ratio and dividend yield can give investors clues about where they are in the bull-bear cycle. As wishy-washy as that conclusion might seem, it's crucial to understanding the ambiguity that can come with trying to read investor sentiment during a time of shifting economic expectations. Trying to time the market can actually negatively affect you—it’s difficult for even the experts to do.

A strong economy

Neither is it a bull market when a major stock market index — such as the Dow Jones Industrial Average, S&P 500 or Nasdaq Composite — hits a new record high. As prices rise, some assets may become overvalued, meaning their prices exceed their intrinsic value. Investors buying overvalued assets during a bull market may be exposed to potential losses when prices return to more reasonable levels. The most recent bull market in traditional financial markets was the bull market that began in early 2009 and continued through early 2020.

Bull Market vs. Bear Market

It’s important to emphasize that last point, because in the height of a bull market, it can be very easy to drop your discipline. These are known as ‘safe haven’ assets, and most traders consider them a ‘safer’ option during times of crisis. Regardless, by most strategists' definitions, we're in a new bull market. Note that by that measure, a bull market comes to an end when the S&P 500 falls 20% from its peak. As much as the "line of bull" story rings true, the most widely accepted theory is that the actions of bulls and bears, when attacking an opponent, reflect market movements.

In sum, the decline in stock market prices shakes investor confidence. This causes investors to keep their money out of the market, which, in turn, causes a general price decline as outflow increases. There’s a lot of excitement during bull markets, which could tempt some investors to get more aggressive with their investing decisions. Before you act, pause to check on your investment plan and look at how your assets—like stocks, bonds, and short-term investments—are allocated. Asset classes perform differently depending on the market, and tweaks might be necessary to maintain your desired asset allocation.