Whether we are in a bull market or bear market can have numerous effects on investors. In this post, we delve into the ins and outs of the bull market.
By Brandi Fowler
You won’t find a bull market in a recession.
It is “a time of expansion”; a period in which stock prices on major indexes like the S&P 500 or the Dow Jones Industrial Average are rising, The Street reported.
A bull market is characterized by a growing economy, high consumer confidence, and people spending money.
“The bull market is when all things are looking up,” said CEO and founder of My Money My Future Ramona Ortega. “Because when the bull is charging, he puts his head upwards. This is why we have the bull on Wall Street.
“The idea is when you are in a bull market, there is a lot of optimism. People feel good, companies feel like they are going to be on track, hit their numbers. You are going to have a strong economy. From the street, it means people feel good about spending. People are not fearful of losing their job. Companies are growing, there's a lot of capital in the market to access it. Think abundance and growth.”
On the other hand, a bear market is when the stock market experiences prolonged price declines and investors have a pessimistic view of the market, according to Investopedia.
“When a bear fights, it fights down,” said financial education specialist and CEO of Emplify Ashley M. Fox. “ So, a bear market is when the market is dropping [about] 20% or lower. A bull market is when the stock market is rising. Always remember a bull fights up and a bear fights down.”
What Happens During a Bull Market
So, how do you know when we are in a bull market? Look for specifics.
“You don't hear any negative news,” Fox said. “You see five-day streaks for the S&P [500]. When you are constantly seeing green, when you are seeing yourself spending more fluidly [we are in a bull market].
“When you think about how the stock market is performing, you can also take an inventory of your life. Are there layoffs going on? When [your spending is] fluid, chances are we live in an economy where people are doing the same thing, and as a result of that you have more money to spend, which means more companies are generating more revenue. [When] more revenue is generated by companies collectively, we have a rise in the stock market.”
Fox also recommended monitoring the S&P 500, which tracks the stock performance of the 500 leading publicly traded companies listed on exchanges in the United States.
“If the majority of the [500 stocks] are up on a consistent basis, over 20%, then essentially that means we are in a bull market,” Fox said. “But you typically know we are in a bull market when there is nothing really bad happening in the news, you constantly see green, our stocks are up for a third day, and some of the biggest household names are performing well.”
Meanwhile, Ortega said that sometimes there can be confusion about the difference between a bull market versus a bull rally.
A bull rally can occur when there is a “huge dip [in stock prices]” like we experienced earlier this summer, Ortega said, when there was higher inflation, issues around Covid-19 spikes, and insecurity in the stock market.
“During that period, we were looking at a bear market happening,” Ortega said. “We were worried about inflation. We were worried about an official recession. And then things dropped so low. Investors want to buy low and sell high, so they started buying up a bunch of stuff during the summer when some decent companies were basically on sale. The problem is that it did not turn this whole market around.”
When everyone bought stocks at a low price, the price of stocks started rising, Ortega said.
“It gave the feeling we were turning the corner,” Ortega said. “The S&P just went down to one of its lowest for the last couple of months because that wasn't a true bull market. We are not really in a bull market. We are sort of figuring out where we are.”
The bull market is a rally greater than 20%, but only becomes official when the S&P 500 hits a record closing high, CNBC reported.
Once it is declared, the lifespan of a bull market includes the recovery period from the S&P 500′s bear market bottom.
For example, in August 2020, after major stock crashes at the start of the pandemic, The S&P 500 “climbed 20% in the second quarter, one of its best on record,” CNBC reported. “Big Tech stocks like Netflix and Amazon outperformed as Americans quarantined at home.”
Industrials, energy, and financial stocks also generated gains. Those wins created the start of a new bull market.
The last bull market before that started in 2009 following the Great Recession. The market climbed 400.5%, and it happened after “the deepest financial crisis and recession since the Great Depression, with the S&P 500 falling nearly 57% between October 2007 and March 2009,” CNN reported.
“Technically when the economy is not growing, when GDP, which is essentially consumers spending less money or more money, happens within two consecutive quarters, that means we are in a recession,” Fox said.
“On paper, we are in a recession now. It may not feel like it depending on who you ask. People are losing jobs. People are spending less. I think the pandemic has caused people to have money set aside, people have a desire to go out. So they are traveling, but people also are spending a lot on their credit cards. I think the true impact of the recession and the decline in the economy won't be really felt until towards the end of the year, possibly 2023.”
What does a Bull Market Mean for Investors?
Fox and Ortega said investors shouldn’t sit on the sidelines during a bull market.
“When there is a bull market, should you buy,” Ortega said. “You should buy in every market. People need to understand the fundamentals. Normal investors should be doing cost dollar averaging. It is what you do in your 401k. And it is what you should be doing in your brokerage account, which is to diversify your portfolio to be consistent.
“So if [you are investing] a hundred dollars a week, buy a hundred dollars every week. It doesn't matter if it's up or down, you are going to consistently buy. It is not how much you buy, it is how long you invest for.”
Also, do your research on stock market terminology, Ortega said.
“Understand what it means, because if there is a bull market, for example, you might start to think about, ‘What else can I diversify into while these other things are a little bit more expensive?’ There are always rallies in between [the bear and bull market]. Those are just cycles. The more you understand the cycle, the more comfortable you will be figuring out how to diversify your portfolio.”
In addition, Fox said the current market is the best time for beginning investors to try out investing.
“This is the best time to learn,” Fox said. “It is not the time to sit on the sidelines and just have your money parked somewhere. This is a time for you to really understand how Wall Street is perceiving the companies you are essentially looking to invest in. So at this point, you should be looking for companies that have the ability to sustain an economic downturn.
“We are going to see a continuous decline. This is the time for you to pay attention to headlines and read the news more, because in any second, the news could shift and all hell could break loose. If the market declines and there is a big drop like there was earlier this year, I get excited by opportunities like that.
Investors and potential investors should keep an eye on whether we are in a bull or bear market. Pay attention to stock market trends and other clues like consumer optimism and spending habits as you decide where to invest.
Top Takeaways
What Is a Bull Market?
