Generally speaking, a bull market is considered over when stocks start a period of steady decline, falling at least 20% from their peak. But it’s important to remember no two bull markets are the same.
As the old saying goes, bull markets don’t die of old age. They die when the market has changed fundamentally, when prices have risen too high or too fast, or when some other event forces investors to feel pessimistic about the future.
Because it’s impossible from day to day to tell when a market has reached its top, it’s very difficult to foresee the end before you are in it. The length of any given bull market is informed by the factors of its time — a concept made clear if you take a moment to examine at some of the biggest bull markets in history:
Post-World War II Rally: June 1949 to August 1956
In these prime post-war years, the S&P 500 rose 267% over 86 months, which works out to a commendable annualized return of 20%. On the home front, consumer goods to fuel the Baby Boom were the main driver, while a strong export market also helped companies grow. This bull stopped primarily because the Fed raised interest rates, and international tension helped bring on a bear market. However, the market was back in bull territory by 1957.
The Housing Boom: October 2002 to October 2007
The Housing Bubble — a dramatic growth in the real estate sector — began after the federal government deeply cut interest rates in hopes of encouraging investment. The financial institutions that encouraged home financing, real estate investing, and trading in mortgages did extremely well — until interest rates started to climb again, and bad borrowers started to default, leading to the subprime mortgage crisis. Stocks hit their peak in early October 2007, marking the end of the bull market and the start of a recession. A bear market arrived the following summer.
The Longest Bull Run in History: March 2009 to March 2020
This record-breaking bull market lasted 131.4 months (nearly 11 years), making it the longest in history. After taking a beating during the Great Recession (2007-09), the S&P 500 gained over 400% after a low of 666 points on March 6, 2009. On February 12, 2020, the Dow Jones Industrial Average reached a record high of 29,551 points. The gains for the S&P alone amounted to over $18 trillion on paper, and during the period unemployment was at a 40-year low, at under 4%.
But just a month later, on March 11, the Dow lost over 20% of its value, falling to under 19,000. The S&P 500 and the Nasdaq were pounded soon after. The most obvious cause? Widespread fears over economic and social damage brought by the global spread of the new coronavirus, as businesses shuttered and millions of people were thrown out of work.