What Is a Bull Market? Are We in One Now?

Bull market definition

It is usually considered to be a bull market when a major market index, such as the S&P 500, has risen by 20% or more over a two-month period.

That being said, the U.S. Securities and Exchange Commission vaguely defines a bull market as "a time when stock prices are rising and market sentiment is optimistic."

Understanding bull markets

The question of whether we're in a bull market at any given time relies on how you interpret those definitions. For instance, which market index are you using? And how optimistic do you have to be?

The start or end of a bull market isn't always so clear cut to those actually watching the market. A short-lived upswing — or downturn — may not tell you everything about investors' attitudes.

Not every upturn in stock prices indicates a bull market — and conversely, not every downturn indicates the end of a bull market, says Frank Paré, a certified financial planner at PF Wealth Management Group in Oakland, California.

“If there’s a 10% correction in the middle of the year, but the market finishes higher than the previous year, one can argue that we’re still in a bull cycle,” Paré says.

The inverse of a bull market is a bear market, in which prices and sentiment are in a downward trend.

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How long do bull markets last?

Between 1926 and 2019, the average bull market lasted 6.6 years and had a cumulative total return of 339%.

But that’s only the average length of a bull market — it’s not the maximum length.

Louis Barajas, a certified financial planner with International Private Wealth Advisors in Irvine, California, says that during longer-than-average bull markets, such as the one that ran from 2009 to 2020, some people become fearful because they misunderstand how averages work.

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He says that some investors — including finance professionals — became unnecessarily conservative with their investments in the mid-2010s because they noticed that the bull market was lasting longer than average and feared that its end was near. But it didn’t end until the beginning of the COVID-19 pandemic several years later.

“People will react behaviorally when they look at some statistics. They go to Vegas, and they’re playing the roulette wheel, and it’s hit black, black, black, black — and they go, ‘Oh, it’s gotta hit red.’ But it could keep going black,” Barajas says.

How to invest during a bull market

These investments and strategies may help your portfolio thrive during a bull market.

1. Small-cap stocks and value stocks may outperform

Paré and Fernandez say that small-cap stocks can outperform major indexes such as the S&P 500 during bull markets — but they can also have higher losses during bear markets. They’re generally more volatile than the large-cap stocks that comprise the S&P 500.

Barajas says value stocks can be another good place to look during early-stage bull markets.

2. Hedging against future downturns

Once a bull market has been underway for a few years, some investors may be tempted to take some money out of stocks to prepare for a future bear market — or even to bet against the market through short selling.

“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.

Darius Gagne, the chief investment officer of Quantum Financial Advisors, a registered investment advisor in the Los Angeles area, says bonds can serve a similar purpose. Bonds provide a place to park money outside of the stock market so that it’s ready for spending or reinvestment in the event of a downturn.

3. Consistency is key

However, all four advisors emphasize that investors should stick to a consistent, long-term strategy through bull and bear markets alike — rather than trying to get into the market at the beginning of each bull cycle and out of it at the beginning of each bear cycle.

“Every single bear market has been temporary. As I often say to clients, I am not concerned about trying to dodge the next 20% temporary decline. I’m concerned about missing the next 100% advance,” Gagne says.