Bull Market vs Bear Market
What these terms officially mean, what tends to drive each, and how long-term investors typically respond.
⏱️ ~6 min read
Key Takeaways
- A bear market is commonly defined as a drop of 20% or more from a recent high; a bull market is a sustained period of rising prices
- Bear markets are a normal, recurring part of investing — not a sign that something is permanently broken
- Trying to perfectly time entries and exits around bull/bear transitions is extremely difficult, even for professionals
- A long-term investment plan should be built to survive both kinds of markets, not just bull markets
Defining the terms
A bull market generally refers to a sustained period in which stock prices are rising, investor confidence is high, and the economy is often (though not always) expanding. There's no single official threshold, but it broadly describes an extended uptrend.
A bear market is more precisely defined by convention: a decline of 20% or more from a recent peak in a major index, sustained over a period of time. A decline of 10–20% from a peak is often called a 'correction' rather than a full bear market.
What tends to drive each
Bull markets are often associated with economic growth, rising corporate profits, low or falling interest rates, and improving investor sentiment — though markets can also rise on optimism about future conditions even before the data fully confirms it.
Bear markets are often triggered or accompanied by recessions, sharply rising interest rates, financial crises, geopolitical shocks, or bursting speculative bubbles — but they can also occur even without a recession, simply from a broad reassessment of how much investors are willing to pay for future profits.
Example: Putting percentages in perspective
If an index falls from 5,000 to 4,000, that's a 20% decline — the threshold often used to call it a bear market.
To go from 4,000 back to a new high above 5,000, the index needs to rise 25% from that bottom (4,000 → 5,000 is a 25% gain), illustrating why recovering fully from a 20% drop requires a larger percentage gain.
Bear markets are common, not exceptional
Looking back over many decades of US market history, declines of 20% or more have occurred repeatedly — roughly every several years on average, though the spacing is irregular. Most have eventually been followed by new market highs, though the time it takes to recover has varied widely, from months to multiple years.
This history doesn't guarantee future outcomes, but it's a useful reminder that volatility and periodic steep declines have historically been a normal part of investing in stocks — the price investors have generally been compensated for over the long run through higher average returns than safer assets.
How long-term investors typically respond
Many long-term investors aim to avoid making large emotional decisions during sharp downturns — for example, selling a diversified portfolio near the bottom of a bear market locks in losses and can mean missing the recovery, which often happens quickly and unpredictably.
Strategies commonly associated with weathering both bull and bear markets include maintaining a diversified portfolio appropriate for your time horizon, continuing regular contributions (sometimes called dollar-cost averaging), and keeping enough cash or short-term savings outside the market to avoid being forced to sell investments at a bad time to cover expenses.
Frequently Asked Questions
How do I know when a bear market will end?+
There's no reliable way to know in advance — bear markets often end before economic news improves, as markets tend to anticipate recoveries before they're confirmed by data. This unpredictability is a major reason many investors avoid trying to time the market.
Should I stop contributing to my investments during a bear market?+
This is a personal financial decision, but many long-term investors view falling prices as an opportunity to buy more shares at lower prices with regular contributions, provided they have a stable income and emergency savings in place. This is not financial advice — consider your own situation.
Is a 'correction' the same as a bear market?+
No. A correction (commonly defined as a 10–20% decline) is shallower and often shorter-lived than a bear market (20%+), though a correction can sometimes deepen into a bear market.