The broad definition of a bull market is a sustained period where prices rise -- usually months or years. The term is most commonly used in reference to the stock market, but other asset classes can have bull markets as well, such as real estate, commodities, or foreign currencies.
What exactly is a bull market?
There isn't a formal qualification that defines a bull market, and there are several different definitions depending on who you ask.
One commonly accepted definition of a bull market for stocks is a 20% rise in stock prices, which follows a previous 20% decline and is followed by another 20% decline. As you can see from the chart below, there was a bull market in stocks that began in 2003 after a big decline bottomed out, and ended when the S&P 500 hit its peak in 2007 before the financial crisis started.
It's also important to point out that the dates of a bull market can only be known in retrospect. In the current bull market, which we'll discuss later, if stocks continue to fall a total of 20% below their 2015 peak, that point will become known as the end of the bull market and the start of a bear market.
Characteristics of a bull market
There are several things that tend to accompany a bull market. For starters, bull markets generally happen during time periods when the economy is strong or strengthening. There will often be strong GDP growth and falling unemployment, and companies' profits will be on the rise.
Additionally, one of the best non-numerical indicators is rising investor confidence. During a bull market, there is a strong overall demand for stocks, and the general "tone" of market commentary tends to be positive.
Because companies can get higher valuations for their equity, we tend to see high levels of IPO activity in bull markets. To illustrate this point, consider that there were only 31 and 63 IPOs in 2008 and 2009, respectively, well below the 275 IPOs that priced in 2014.
The current bull market (2009-?)
As this article is being written (March 2016), there has been a bull market in stocks for the past seven years. As most people remember, the S&P 500 plunged in 2008 and bottomed in March 2009. From there, stocks rebounded and continued to increase (although not in a straight line) for the next seven years without experiencing a drop of 20% or more.
During the current bull market, unemployment has fallen from 8.7% to 4.9%, and real GDP has grown from $14.5 trillion to $16.4 trillion. The past 12 months of earnings from the S&P 500 have risen by 142% and the average S&P 500 stock trades for 19.2 times earnings, up from 15.7 at the start of the bull market.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at email@example.com. Thanks -- and Fool on!
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.