What's a bull market?
A bull market is a sustained period where prices are generally rising. The trend is up, but not everyone will agree on how long that period must be to qualify.
For stocks, people often consider a 20% rise in stock prices cumulatively in the market a bull market, usually following a previous 20% decline.
You might also hear people talk about being “bullish” on an investment. If you’re bullish, you are confident – you have an optimistic outlook.
One suggestion for the origin of the term “bull” is that a bull thrusts its horns up. However, when a bear fights it swings its paws down.
A bull market ends when stock prices fall 20% cumulatively in the market.
What's a bear market?
A bear market refers to a downturn in the market, one where stock prices are generally falling. In investing, if you expect prices to fall, you will be referred to as “bearish”.
Some people say the term could be related to bearskin sellers of the 1700s – also known as the “bearskin jobbers” – and the phrases “don’t sell the bear skin before you’ve caught the bear” or “to sell the bearskin”.
These “bearskin jobbers” were middlemen who sold bearskins before they had received them – speculating on the future purchase price in the hope that it would drop and they could profit on the difference.
Today we call this “short selling”.
How long do bull markets last?
In August this year, the US equity bull market became the longest in history (it began in March 2009). In fact, last year was also the first time in 35 years when there wasn’t so much as a single seven-day period in which the US equities market fell by more than 2%. That is highly unusual.
More recently, investors have begun to question just how much longer it can go on, and markets have slipped back. A number of factors could end the bull-run, from US-China trade wars to higher interest rates.
But even if the bull market does carry on, investors should remember that how a market has performed in the past is no indication of how it will perform in the future. Portfolios should remain balanced, even when it can be tempting to get carried away with the enthusiasm of others.