Recently someone asked me, “When did this bull market start?” It’s a great question because it can provide insight into whether the market is getting overextended.
Of course, bull markets have no specific length or expiration date. We can’t predict that there is “only X years” left in the current bull market. On the other hand, we also know that they don’t last forever. Some event will come along and eventually put an end to the party.
So where might we be in that cycle?
Before we answer that question, let’s think about what defines the beginning and end of a bull market.
When Does a Bull Market Begin & End?
Though there is no widely agreed upon definition, I’ve seen the following beliefs about when a bull market begins:
After a 20% rally from the lows After a huge surge in optimism among investors (e.g. a big jump in investor sentiment) Multiple months of price increases
And, if we assume this is when a bull market begins, then a bull market ends when the opposite occurs:
After a 20% decline from all-time highs After a huge surge in pessimism among investors (e.g. a large decline in investor sentiment) Multiple months of price decreases
While all of these conditions work, my philosophy for when a bull market begins and ends is based on what I like to call a “clearing event.” I would define a clearing event as any time when there is a significant decrease in both stock prices and investor sentiment. In other words, it’s all of the conditions above at the same time.
If you accept my clearing event idea, then a bull market would begin when we recover from a clearing event and an end when a new clearing event comes around.
