Have you ever heard the stock market described as “bullish” or “bearish” and wondered what animals have to do with investing? Here’s how bulls have come to symbolize an optimistic investment climate.
What does bullish mean?
In finance, the term “bullish” can describe market conditions or even an individual investor. A bullish view is marked by strong optimism based on current performance and an expectation that it will continue. Investors may be bullish about the overall market if they expect the economy to perform well, or bullish about a specific stock if they expect the company’s profits to grow.
What is a bull market?
A bull market is commonly defined as a period when major stock market indexes (like the S&P 500® or the Dow Jones Industrial Average) are generally rising, with market indexes eventually reaching new highs. The US Securities and Exchange Commission (SEC) defines a bull market as a period when a broad market index rises 20% or more over at least 2 months.
Generally, bull markets are marked by investor confidence and sometimes higher trading volume. They may occur alongside favorable economic conditions or during the upswing from a prolonged economic downturn. A bull market’s overall duration can vary. There have been 26 bull markets since 1872, lasting a median of 42 months (3.5 years) with a median price gain of 87%. Contrast that with 26 bear markets in the same period (generally considered a drop in major stock indexes of at least 20% from recent highs), which have lasted a median of 19 months (less than 2 years) with a median drop of -33%.
Why do we call investors bullish?
We call investors bullish because of an old market metaphor: Charging bulls thrust their horns in an upward motion, similar to the upward trajectory of stock prices during a bull market. In fact, there’s a bronze charging bull statue symbolizing optimism near Wall Street in New York City.
Bullish investors take the bull by the horns, so to speak, when they invest in the market or buy stocks with an expectation of cashing in on future gains. Unlike their bearish counterparts, who are pessimistic and expect stock prices to go down, a bullish investor may purchase more stocks or keep their holdings as opposed to pulling back or selling.
Bullish vs. bearish
Here are some of the key differences between the confident bull and pessimistic bear:
Market projections
- A bullish market outlook means you expect asset prices to rise.
- A bearish market outlook means you expect asset prices to decline.
Market conditions
- A bullish market occurs, by one definition, when there is a 20% or higher rise in a broad market index price during at least a 2-month period.
- A bearish market is said to occur when major stock price indexes have fallen at least 20% from recent market highs.
Investor risk sentiment
- Bullish investors might take on more risk than bearish investors because they believe it’ll lead to future gains.
- Bearish investors are typically more cautious and expect a market slump. Some might employ defensive strategies like investing in lower-volatility equities or holding more money in bonds, which are generally less risky than stocks but offer lower potential returns.
While some investors might choose to invest more aggressively when they’re bullish and more conservatively when they’re bearish, Fidelity believes that investors are generally well served by investing according to a long-term plan that accounts for their risk tolerance, timeline, and goals.
Tips for bullish investors
If you’re riding the bull—that is, feeling bullish as an investor—consider these strategies:
- Take stock of your stocks and other investments
Before making any new moves, examine your current investments. Do you need to rebalance (adjust your portfolio to your desired asset allocation)? If you want more guidance, consider using a financial pro to help you chart a path forward. - Don’t ditch diversification
You may be tempted to go heavy on stocks with rising prices, but you may not want to abandon other parts of your portfolio like bonds, commodities, or cash. Staying diversified, or spreading around investments so you’re not overly concentrated in one investment type or industry, may help you handle unforeseen changes in the market. Just remember: Diversification doesn’t ensure a profit or guarantee against loss. - Don’t try to time the market
When stocks hit a new record, you might wonder if it’s time to lock in your gains by selling investments. But if you cash out before you’ve hit your investing goal or need your money, you may miss out on potential future growth. On the other hand, some may avoid investing until they’re sure it’s a bull market on the way to new heights—but then they end up buying high. Avoid trying to guess when a bull market might start or end, and stay the course with your investments with the expectation that markets fluctuate in the short term but tend to rise over time. (Again, past performance is no guarantee of results.) - Keep taxes in mind
If the bull market is sending your stock prices higher, you may have higher capital gains taxes to pay when you eventually sell investments for a profit. Consult a tax professional for your situation. - Seek gains outside the stock market
A bullish economy may indicate a strong job market. Positive corporate earnings growth can mean employers have the money to reinvest in their companies by expanding and hiring. Boom times may be an opportunity to ask for a raise or promotion or to research roles at other companies.