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3 min readTapeboard Staff

What is a Bull Market? Definition, Formula, and Example

A bull market is a sustained period in which a broad market index rises at least 20% from its most recent trough, accompanied by expanding breadth, rising earnings, and positive investor sentiment.

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Bull Market Definition

A bull market is a sustained period in which a broad equity index rises at least 20% from its most recent closing low, and continues making higher highs and higher lows over months or years. The 20% threshold is the industry convention used by S&P Dow Jones Indices, Bloomberg, and the NBER-adjacent research that dates market cycles. A bull market is not a sentiment label — it is a measurable condition: a 20% advance off the trough, confirmed in hindsight, that persists until a subsequent 20% decline marks a new bear market.

How a Bull Market Is Identified

The identification rule has two parts:

1. Trough identification. Mark the lowest closing price of the index after the prior bear market decline.

2. Confirmation threshold. When the index closes 20% above that trough, a new bull market is declared — retroactively dated to the trough itself, not the confirmation date.

Formula: Bull confirmed when Index close ≥ 1.20 × Trough close.

Beyond the headline rule, analysts grade bull market quality on:

  • Breadth. The advance-decline line making new highs alongside the index confirms broad participation.
  • Duration and magnitude. The average post-WWII S&P 500 bull market lasts roughly 5 years and gains ~180%.
  • Earnings support. Durable bulls pair price gains with rising earnings per share; multiple-expansion-only bulls are more fragile.

Worked Example: The 2020–2022 Bull Market

The S&P 500 bottomed at 2,237.40 on March 23, 2020, during the COVID crash. Applying the formula:

  • Confirmation level = 2,237.40 × 1.20 = 2,684.88
  • The index closed above that level on April 14, 2020 — just 16 trading days after the trough, the fastest bull-market confirmation on record.

The bull ran to a closing peak of 4,796.56 on January 3, 2022, a total trough-to-peak gain of 114.4% over 651 calendar days. It ended when the index fell more than 20% from that peak in June 2022, meeting the bear-market rule. Individual names amplified the move: NVDA rose roughly 300% from the March 2020 low to its late-2021 high, while AAPL gained about 140% over the same span.

When Traders Use the Bull Market Framework

  • Regime positioning. Trend-following strategies carry maximum long exposure in confirmed bulls and reduce gross exposure in bears. The 200-day moving average is the most common regime filter.
  • Risk budgeting. Realized volatility trends lower inside bull markets — the VIX averaged roughly 17 during 2021 versus 29 in 2022 — so options premium selling and leveraged strategies carry different expected returns by regime.
  • Cycle analysis. Traders compare the current bull's age and magnitude against historical distributions to calibrate expectations for market corrections, which occur on average once every 1–2 years inside bull markets.
  • Sector rotation. Early-cycle bulls favor financials and industrials; late-cycle bulls favor defensives. See stock sector rotation.

Limitations and Common Misconceptions

  • The 20% rule is arbitrary and retrospective. You only know a bull market began after it has already run 20%. Traders waiting for confirmation miss the sharpest part of the recovery.
  • Bull markets contain violent drawdowns. The 2020–2022 bull included a 10% correction in September 2020 and an 8% pullback in late 2021. "Bull market" describes the primary trend, not a straight line.
  • A rising index can mask weak breadth. In 2023, seven mega-cap stocks drove most of the S&P 500's gain while the equal-weight index lagged — a bull market in price, but narrow in participation.
  • Bull markets don't die of old age. They end from tightening financial conditions, earnings recessions, or external shocks — not duration alone.