Bull vs bear market: what the terms mean and how investors respond

The difference between a bull vs bear market comes down to direction and scale: a bull market is a sustained rise in prices, while a bear market is a decline of 20% or more from a recent high. Between the two sits the correction, a drop of 10% to 20%. Knowing these definitions matters less than knowing how you’ll behave when each arrives, because investor reactions often do more damage than the markets themselves.

This is general education, not personal financial advice.

The definitions

There is no legal or official definition, but the financial industry uses widely accepted conventions, applied to a broad index such as the S&P 500:

Term	Conventional definition	What it typically feels like
Bull market	A sustained rise, generally 20% or more off a low	Optimism, rising earnings, strong demand for stocks
Correction	A decline of at least 10% but less than 20% from a recent high	A sharp scare that often passes within months
Bear market	A decline of 20% or more from a recent high, generally over at least two months	Pessimism, falling earnings forecasts, frequent negative headlines

The SEC’s investor education site uses the same yardsticks. Investor.gov defines a bear market as a time when stock prices are declining and sentiment is pessimistic, generally a fall of 20% or more in a broad market index over at least two months. Its bull market entry is the mirror image: rising prices, optimistic sentiment and, generally, a rise of 20% or more over at least two months.

Here’s how the math works with a hypothetical index. Say it peaks at 5,000. A fall to 4,500 is a 10% decline, which is a correction. A fall to 4,000 is a 20% decline, which crosses into bear market territory. If the index then bottoms at 3,800 and climbs back to 4,560, that is a 20% gain from the low (3,800 × 1.2 = 4,560), and by the common convention a new bull market began at 3,800.

Notice the asymmetry of losses. A 20% fall needs a 25% gain to get back to even, and a 50% fall needs a 100% gain. That is one reason deep bear markets take a long time to recover from.

The terms apply beyond stocks. You’ll hear about bull and bear markets in bonds, housing, commodities and cryptocurrencies, too.

How long they tend to last

Speaking in general terms about US stocks:

• Bull markets have historically lasted much longer than bear markets, often running for several years, and their gains have more than made up for the losses of the bear markets in between.
• Bear markets have tended to be shorter, often lasting months rather than years, though some have been long and severe.
• Corrections are frequent, occurring every year or two on average, and most do not become bear markets.

Two well-documented examples show the range. During the 2007–2009 financial crisis, the S&P 500 fell by more than half from its October 2007 peak to its March 2009 low. In early 2020, the pandemic sell-off took the index down by roughly a third in about a month, one of the fastest bear markets on record, followed by an unusually rapid recovery.

The lesson is not that the next bear market will look like either one. It’s that averages hide a wide range, so plan for declines that are deeper or longer than you expect.

What drives them

Bull markets are usually supported by a growing economy, rising corporate profits, low or falling interest rates and improving confidence. Bear markets often coincide with recessions, falling profits, rising interest rates, financial crises or sudden shocks. Not every bear market comes with a recession, and not every recession produces a bear market, but the two are often linked.

Valuations matter too. When prices rise faster than earnings for a long time, markets become more vulnerable to bad news. To understand how analysts track these shifts, see our guide on how to read market trends.

Analysts also distinguish cyclical bull and bear markets, which follow the ups and downs of the business cycle over months or a few years, from secular trends, broad moves that can stretch across a decade or more and contain several cyclical swings within them. A secular bull market can include sharp bear markets along the way, and a long sideways stretch can include powerful rallies that later fade.

What a bear market does to a portfolio

Headlines report what happens to an index, but what matters to you is your own mix of investments. Here is a hypothetical illustration.

Say you hold a $100,000 portfolio split 60% stocks and 40% bonds, so $60,000 and $40,000. A bear market cuts stocks by 30%, while bonds are flat. Your stocks are now worth $42,000 and the total is $82,000, an 18% decline rather than 30%. Diversification didn’t prevent a loss, but it softened it.

Your mix has also drifted: stocks are now about 51% of the portfolio. Rebalancing back to 60/40 means moving roughly $7,200 from bonds into stocks, buying at lower prices. If stocks later recover, that rebalanced portfolio regains ground faster than one left alone. The same logic works in reverse in a strong bull market, when rebalancing trims stocks that have grown beyond their target and locks in some gains.

Bonds don’t always hold steady during stock declines, and in some periods both have fallen together, especially when interest rates were rising. Our analysis of how interest rates affect the stock market explains why.

Investor behavior: fear, greed and timing

Markets are made of people, and people are predictably emotional with money.

• In bull markets, rising prices pull in new buyers, stories of easy profits spread and risk feels small. Investors may chase hot sectors, take on leverage or drop diversification just as prices become expensive.
• In bear markets, the reverse happens. Losses hurt more than equal gains feel good, a tendency behavioral economists call loss aversion, so investors are tempted to sell to stop the pain, often near the bottom.
• Herding, following what everyone else is doing, amplifies both swings.

The result is the classic mistake of buying high and selling low. Because the strongest days of a recovery often come soon after the worst days of a decline, investors who sell in a panic and wait for “clarity” frequently miss a meaningful part of the rebound.

What to do, and what not to do

Things that tend to help

1. Have a written plan. Set your asset allocation, the mix of stocks, bonds and cash, based on your goals and time horizon before a downturn arrives. Investor.gov’s guide to asset allocation and diversification is a good starting point.
2. Keep an emergency fund. Cash set aside for emergencies means you won’t be forced to sell investments at low prices to pay bills. A simple budget that sets aside a fixed share of income for savings can help you build one.
3. Invest on a schedule. Dollar cost averaging, investing a fixed amount at regular intervals, means you automatically buy more shares when prices are low and fewer when they are high.
4. Rebalance periodically. Rebalancing means bringing your portfolio back to its target mix. In practice, it makes you trim what has risen and add to what has fallen.
5. Stay diversified. Spreading money across asset classes and sectors, for example through broad index funds, reduces the damage any one area can do.

Things that tend to hurt

• Trying to time the market by selling before a fall and buying before a rise. It requires being right twice, and few people manage it consistently.
• Checking your portfolio constantly during a decline, which makes emotional decisions more likely.
• Taking on more risk late in a bull market because recent returns feel normal.
• Borrowing to invest, which magnifies losses and can force sales at the worst time.
• Investing money you’ll need soon. Cash needed within a few years generally doesn’t belong in stocks.

The bottom line

The bull vs bear market distinction is a convention: up 20% from a low, down 20% from a high, with corrections of 10% in between. Bull markets have historically lasted longer than bear markets, but both are a normal part of investing. Since nobody can reliably predict when one turns into the other, the most useful preparation is a plan you can stick to in both. For more on how markets move, visit our Market Trends hub.