What Is a Bull Market? With Examples, Causes, and How It Got the Name

3 Driving Forces of a Bull Market

bull market
A woman walks past the bronze bull statue near Wall Street in lower Manhattan. Photo by Chris Hondros/Getty Images

Definition: A bull market is when any asset class rises in value over an extended period. Confidence is high that prices of the asset will continue to grow. You can have a bull market in any asset, including stocks, bonds, gold and other commodities, even housing. However, most of the time you'll hear bull market referring to securities markets.

Bull Market vs. Bear Market

A bull market always reaches a point where prices have gone up for so long that investors think they'll always go up.

They enter a state of irrational exuberance, bidding prices way above any underlying value. That's an asset bubble. That phase can go on for quite a while.

However, inevitably the bubble bursts, and prices crash. That can lead to a market correction, where prices just drop around 10% or less. If prices continue to fall over an extended period, the asset class descends into a bear market. That's when investor confidence collapses, and they believe prices will just continue to fall. An actual bear market is when prices fall 20% or more.

Secular Bull Market

A secular bull market is a long-term, overarching trend that last 5 - 25 years. A bull market can have a correction, drop 10%, and then resume its upward swing without entering a bear market. However, a secular bull market can have smaller bear markets within it. These are called primary market trends. Most stock bear markets last 18 months or so.

Stock Bull Market

Most of the time that you hear about a bull market, people are referring to the stock market. Usually all three major stock market indices -- the Dow Jones Industrial Average, the S&P 500, and the NASDAQ -- are rising at the same time. A bull market usually has to consistently make higher highs and higher lows.

A stocks bull market generally correlates to a healthy economy.

There are three drivers of a stock bull market:

  1. Top-line revenue: This should increase as fast as the economy (as measured by nominal GDP). That reflects demand for goods and services from consumers. In past recoveries, it was 7.5%, 5.6%, and 5.2%. Since 2008, it's only grown 3.7% on average.
  2. Profit: This is how much top revenue has generated in profit for the company. On average, for the past 20 years it's been 7.5%. In this recovery, it's 9.8%, a record. You might think it's good that companies can generate more profit from the same revenue dollar, but it's not. That's because the profit is at the expense of jobs, salary and investments in capital.
  3. P/E ratio: This is how much in additional stock price that investors are willing to pay for each dollar of earnings. Right now it's around 16.6 times earnings for the S&P 500. That's about 9% higher than the average of the past five years. (Source: WSJ, Robust Earnings Cloud Reason for Worry, May 16, 2014)

Gold Bull Market

On September 5, 2011, gold prices reached an all-time high of $1,895. That was the end of a bull market in gold that started in 2000. Before then, gold usually hovered around $300-$400 an ounce.

For more, see Gold Price History.

Bond Bull Market

For the past 32 years, bonds have been in a bull market. That means that you wouldn't lose money buying a bond because their rates of return were always positive. However, that has come to an end. For more, see The Bull Market in Bonds Is Over.

Market Bull

A market bull is a someone who thinks that prices are going up. That person is said to be bullish. A market bear is, of course, the opposite -- one who thinks prices are going down and is said to be bearish.

Bull Market Meaning in History

Why use a bull or a bear to describe a market trend? It all started in the late 1500s, with bull and bear baiting. That's when people watched bulls (or bears), chained to a post, be attacked by dogs. (This is what bulldogs were bred for.) Spectators would bet on whether the bull or dog would win.

Bull "baiting" was so popular that every town in England had its own bull ring, and in some towns events occurred several times a week. For a detailed description, see The History of Bull Baiting. Surprisingly, bear baiting still occurs in South Carolina, although it's illegal in the other 49 states. See Humane Society video Bear Baiting.

That's how bears and bulls first became linked in people's minds. Bears were used to describe market behavior in the 17th century. First, people often used the phrase, "Don't sell the bearskin before one has caught the bear," to describe hunters who did exactly that. In the stock market, short sellers did the same thing -- they sold shares of stock before they owned them. They bought the shares they day they were to deliver them. If share prices dropped, they would make a profit.

It made sense in people's minds to use bulls to describe the opposite of bears -- those who bet prices would rise. Also, the Germanic root of the word "bull" means "to blow, inflate, or swell," which is what a rising market does.

The phrases were first published in the 18th-century book, "Every Man His Own Broker," by Thomas Mortimer. Two 19th century artists made the terms even more popular.  Thomas Nast published cartoons about the slaughter of the bulls on Wall Street in Harper's Bazaar (see image). William Holbrook Beard painted the stock market crash of 1873 using bulls and bears (see image).   (Source: Federal Reserve Banks of New York, Symbolism of the Bull and Bear, Motley Fool, Origin of Bulls and Bears. Valentine Capital Asset Management, Bulls and Bears. Investing Answers, The Quirky and Brutal Origins of the Words Bull and Bear

Examples: Now perhaps you better understand the old Wall Street saying. "Bulls and bears make money, but pigs get slaughtered."