Bull vs. bear market: What do they mean for you?

Bull and bear markets are used to define the stock market and typically describe broad market trends over time, rather than short-term market movements or conditions. Let’s take a look at how “bull market” and “bear market” are defined and what generally distinguishes these market environments.

What is a bull market?

A bull market occurs when stock prices rise by 20% after experiencing a decline of 20% or more. Bull markets come in anticipation of or during periods of economic strength and typically last months or even years. They also often coincide with low unemployment, high corporate profitability and solid gross domestic product (GDP).

During a bull market, investor sentiment is optimistic and confident.

What is a bear market?

A bear market happens after the market declines by 20% or more from a recent peak. This type of market can take hold when the economy starts to weaken, as experienced during early years of the COVID-19 pandemic.

During a bear market, broader economic indicators, like the GDP, start to decline. Unemployment may rise as companies start to lay off employees. Investor confidence is low, as many people are unsure about the future.

It’s important not to confuse a bear market with a market correction, which is defined as a drop of 10% or more in the stock market value. Market corrections are a normal event and can occur for a variety of reasons.

Bull market vs. bear market

Even without calculating the rise or fall of markets in terms of percentages, there are general indicators of whether the markets are in bull or bear territory.

Bull market

• Increase in trading volume
• A drop in unemployment
• High corporate profitability
• Growing or stable GDP
• Increase in number of initial public offerings (IPOs)

Bear market

• Rising unemployment
• Low investor confidence
• Declining GDP
• Low consumer disposable income

Stay up-to-date on what’s happening in the markets now.

Stock market history: A look back at bull and bear markets

Past bull and bear markets demonstrate how markets can move through both cycles, reinforcing that periods of growth and decline are a normal part of long-term investing.

The last significant bear market was in October 2007, during the Great Recession, and it lasted until about March 2009. During that time, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 suffered declines of more than 50% —the worst market crash since the Great Depression. The government approved a $787 billion stimulus package in 2009, which kicked off the most recent bull market. Running until 2020, it was one of the longest bull markets in Wall Street history.

A steep market plunge at the beginning of the COVID-19 pandemic signaled the start of a short-lived bear market in February and March 2020. Another short-lived bear market occurred in August and September 2022 due to investor anxiety around persistent high inflation and increasing interest rates.

How long do bull markets last?

The average bull market period lasted 8.2 years, with an average cumulative total return of 270%. ¹

How long do bear markets last?

The average bear market period lasted 1.5 years, with an average cumulative loss of -36%. ¹

Investing during a bull or bear market

Markets will naturally move through bull and bear market cycles. Understanding these cycles can help you maintain perspective and avoid making decisions based on short-term conditions.

In times of volatility, some investors may choose to stay invested in fixed-income securities, such as bonds, while others may purchase stock at newly lowered prices. Still others may choose to purchase stocks in sectors that aren’t affected deeply by market trends; one example is companies producing items that are necessities in varied economic conditions, such as household products.

The day-to-day market movements — especially when they’re drastic — can be unnerving.

Maintaining a diversified portfolio based on your financial goals, time horizon and risk tolerance may help you to confidently stay the course and better weather market ups and downs. Consider working with a financial professional to determine if, or how, you should adjust your strategy according to current market conditions.