Financial news is full of talk about bulls and bears. These terms describe the overall direction of the market, and understanding them can help you stay calm when prices swing.
What is a bull market?
A bull market is a period in which stock prices are generally rising. A common rule of thumb defines it as a rise of 20% or more from a recent low. Bull markets are usually accompanied by economic growth, strong company profits and optimistic investors. The name comes from the way a bull thrusts its horns upward.
What is a bear market?
A bear market is a period of falling prices. The common definition is a decline of 20% or more from a recent high. Bear markets often coincide with economic slowdowns, rising unemployment or shocks that shake investor confidence. The name comes from the way a bear swipes its paws downward.
What about corrections?
A market correction is a smaller decline, typically 10% to 20% from a recent peak. Corrections are common and happen more often than bear markets. They are part of normal market behavior, even during long bull markets.
| Feature | Bull market | Bear market |
|---|---|---|
| Direction | Prices rising 20% or more from lows | Prices falling 20% or more from highs |
| Investor mood | Optimism, greed | Fear, pessimism |
| Economy | Often growing | Often slowing |
| Typical length | Usually longer, often several years | Usually shorter, often months to a couple of years |
How long do they last?
Historically, bull markets have lasted much longer than bear markets, and the market has tended to recover and reach new highs after downturns. But timing is unpredictable, no two cycles are alike and past patterns are no guarantee for the future.
How to handle a bear market
- Remember your time horizon. If you will not need the money for many years, short-term drops matter less.
- Avoid panic selling. Selling after a big drop locks in losses and can cause you to miss the recovery.
- Keep investing regularly if you can. Buying during a downturn can lower your average cost over time.
- Stay diversified across asset types and regions.
- Keep an emergency fund so you never have to sell investments at a bad time.
- Rebalance if your allocation drifts far from your plan.
How to handle a bull market
Good times bring their own risks, such as overconfidence, chasing hot investments or taking more risk than you can handle. Stick to your plan, keep costs low and remember that markets do not rise forever.
Psychology matters
Behavioral finance shows that people feel losses more strongly than gains, which is called loss aversion, and they often buy after prices rise out of fear of missing out. Knowing these tendencies helps you avoid the classic mistake of buying high and selling low.
Real-world examples
Two well-known downturns show how different bear markets can be. During the 2007 to 2009 financial crisis, the S&P 500 fell by roughly 55% from peak to trough, and it took until 2013 to regain its earlier high. In early 2020, the pandemic crash dropped the index by roughly a third in about a month, and it recovered to a new high within months. Every downturn has different causes and timing, so history is a guide to behavior, not a forecast.
Frequently asked questions
Can I predict when a bear market will start?
No one consistently predicts market turning points, professionals included.
Should I sell before a bear market?
Trying to time the market is difficult. Most long-term investors do better sticking to a plan.
Are bear markets always tied to recessions?
Often, but not always.
This article is for general educational purposes only and is not financial, investment, tax or legal advice. Rules, rates and figures change and differ by country, so check current information and consider speaking with a licensed professional before making decisions.