How long are bull markets in stocks?

Oh, for a bull market! Businesses grow, consumers spend and investors are confident about the future. Typically, bull markets in stocks are defined as a 20% rise from a previous low, just as bear markets are defined as a 20% decline from a previous high. While investors might enjoy picking stocks or exploring the latest investment themes, what makes an even bigger difference is the overall trend of the stock market — bullish, bearish or something in between. And probably the most important thing that affects the overall trend of the stock market is interest rates.

In this article, we're going to discuss bull markets in stocks — how long they last and how they're affected by interest rates. We wrap up with some thoughts on how investors can navigate bull and bear markets.

Based on data since 1949 in the United States, there have been a total of 12 bull markets, including the current one.¹ Below is a breakdown of these markets:

Bull markets can end dramatically, like with surging oil prices in 1973-74 or a global pandemic in 2020. But what's more common is that bull markets end gradually, due to higher interest rates. How does this play out? Consumers feel wealthy because of rising incomes, plus stock market and house price gains. This tempts them to spend more, often using credit or other debt. To meet this demand, businesses expand their operations and hire more staff, creating a labour market shortage that results in higher wages. But the extra effort by businesses doesn’t typically increase output enough to meet demand — and the economy ends up with "too much money chasing too few goods". This results in inflation, an increase in the prices of consumer goods and services.

At this point, central banks like the Bank of Canada and the US Federal Reserve start to get concerned. They're expected to keep inflation low and stable, typically in a 1 to 3% range, so they start to raise interest rates to cool inflation. When they raise rates, businesses tend to borrow less, cut back on their expansion plans and pause hiring or reduce staff. In turn, this reduces consumer spending, slows the housing market and dampens confidence, dragging down economic activity. Investors in the stock market increasingly expect a slowdown or recession, which means tough times for many businesses. As a result, investors start selling stocks.

Often it's rising rates that end bull markets, more than high rates. From 1995 to 2000, interest rates in the United States were relatively high, in the 5 to 6% range. That didn't stop tech stocks going on a huge bull run. Yet in late 2022, stocks crashed with rates only around 4%, a pretty average level by historical standards. The problem was that rates had surged from almost zero at the start of the year.

Central banks typically cut rates in a series of moves or a cycle, with 3 to 6 or more rate cuts, often lasting a year or longer. Earlier cuts in the cycle can be bullish or bearish for stocks, while later cuts tend to be bearish.

Whether earlier cuts are bullish or bearish depends on how the economy is doing, and how well the central bank has been able to read the economy. If the economy still has some room to run but just needs to cool off a bit, this is "cutting into strength", with some chance of extending the business cycle. But if investors feel the central bank is behind the curve and the economy is already close to recession, this is "cutting into weakness". The Federal Reserve's cuts of 2007 and 2022, for example, were cuts into weakness; the market started to sell off right away.

Later cuts in a cycle are typically bearish. The initial cuts are often "too little, too late". Although later cuts are meant to continue stimulating the economy, their effect on the stock market is often outweighed by the risk of a slowdown or recession, which usually means that corporate profits and stock prices falter.

Rising interest rates can end bull markets, while falling interest rates can have a mixed effect. It's important to understand the economic background for rate hikes or rate cuts, for which we recommend following reports from CIBC Economics. The stakes can feel high for investors, comparing a strong up year of say 10%, 20% or 30% to a down year of -20% or even lower. What's an investor to do about bull and bear markets? One thing's likely: it's very difficult to time the market, investing only in bull markets and sitting on the sidelines in bear markets.

Here are four ways to navigate bull and bear markets, while avoiding the extremes of market timing:

Keep calm and carry on 

You can keep calm because you’ve built a diversified portfolio that's aligned with your goals and your tolerance for risk — based on realistic losses you might incur in bear markets. With a long-term strategy in place, you might not need to change your portfolio that much.

Tilt your asset mix 

Feel the need to change your investments? Consider tilting instead of making huge shifts. Say you're investing for the long term and your allocation to stocks is 60% to 80% of your portfolio. If you feel a bear market is likely, you could move to the lower end of your range, instead of selling out of the market.

Tilt your investment strategies 

Another way to tilt is with your investment strategies. Say your portfolio includes a growth focus on technology stocks, a market focus on a broad index fund and a defensive focus on dividend-paying stocks. If you think a bear market is coming, you could reduce the growth part of your portfolio, while adding to the market or defensive part of your portfolio. This allows you to stay invested but potentially at lower risk, without throwing in the towel on your investments.

Adjust your contributions 

Maybe you contribute a regular dollar amount to your investments, like $250 biweekly to take advantage of dollar-cost averaging. Once a bear market comes along, you could maintain or even increase your regular contributions, in order to buy at lower prices. Increasing your contributions at market lows is likely more effective than reducing your contributions at market highs, since bull markets can sometimes last for 10 years or more, while bear markets are often much shorter.

For long-term investors who may feel concerned about a bear market, we highlight the role of tilting, rather than completely exiting the market. As the great investor Peter Lynch observed: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves".

• Bull markets in the United States typically last about 5 years, but they can last 10 years or longer
• Rising interest rates, needed to cool inflation, are what typically end bull markets. And rising rates matter more than high rates.
• Falling interest rates can have varied effects on bull markets. The earlier cuts in a cycle can be bullish or bearish, depending on the strength of the economy. The later cuts in a cycle tend to be bearish, as the stimulus from lower rates is outweighed by the risk of a slowdown or recession, typically a tough time for many businesses.
• Investors have many ways to navigate bull and bear markets, while avoiding the extremes of market timing. Possible approaches include remaining steadily invested with a suitable asset mix, tilting your asset mix, tilting your investment strategy or adjusting your contributions.