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

You may have heard the terms “bull market” and “bear market,” but you may not know what they mean for your investments.

Let’s start by understanding the terms. “Bull market” and “bear market” are often used to define the stock market, but they can apply to any asset that is traded, including real estate, commodities and currencies.

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 the 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

Learn what’s happening in the markets now.

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

Past performance is no guarantee of future results, but it can be helpful to look at the history of the market’s expansions and contractions to understand how these market phases have taken place.

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 has lasted 8.2 years with an average cumulative total return of 270%.¹

How long do bear markets last?

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

Investing during a bull or bear market

Bull and bear markets are tough to predict, and it can be even tougher to estimate how long they’ll last. In reaction to falling stock prices, many investors move money out of the market. A mass exodus, however, can cause the market to decline further.

In times of volatility, some investors may choose to stay invested in fixed-income securities, such as bonds, while others may also 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. In times of uncertainty, it’s logical to revisit your risk tolerance. Investing in the market should be considered a long-term strategy, and it should fit with your lifestyle and financial goals. Confirming that your asset allocation aligns with your financial goals and feelings toward risk is a worthwhile discussion with your financial professional.

Are we in a bull or bear market right now?

Despite stalled inflation improvement, U.S. investors continue to enjoy a bull market with very little volatility. As of the end of June 2024, it had been over 12 months since the market incurred a daily loss of at least 2.05%.² Investor confidence is high, and consumers and businesses continue to spend.

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 how, or if, you should adjust your strategy according to current market conditions.

How you feel about the market is the one factor you can control. Learn how to handle market volatility.