"Bull" and "bear" describe the direction of the stock market. A bull charges upward with its horns; a bear swipes downward with its paws. The terms are used for the whole market, a sector or even a single stock.
Definitions
- Bull market: a sustained rise in prices, commonly marked by a gain of 20% or more from a recent low.
- Bear market: a decline of 20% or more from a recent high.
- Correction: a drop of 10% to 20% from a recent high. Corrections are common and often happen within longer bull markets.
These thresholds are conventions, usually applied to a broad index such as the S&P 500, and are only confirmed after the fact.
What drives them
Bull markets tend to come with growing corporate profits, a healthy economy, rising employment and investor optimism. Bear markets often accompany recessions, sharp rises in interest rates, financial crises or a collapse in valuations after a period of excess. Investor sentiment amplifies both: optimism pushes prices higher than fundamentals justify, and fear pushes them lower.
How long they last
Historically, US bull markets have lasted much longer than bear markets on average, and the gains in bull markets have far exceeded the losses in bear markets. Bear markets can be painful and frightening, but the market has eventually recovered from every one so far, sometimes quickly and sometimes over several years. Past patterns don't guarantee the future.
Investing through a bull market
- Keep your plan and keep contributing.
- Rebalance if strong gains have pushed stocks above your target share of your portfolio. See how to diversify.
- Watch valuations. Rising prices can make the P/E ratio of the market or your favorite stocks look stretched.
Investing through a bear market
- Avoid panic selling. Selling after a large drop locks in losses and risks missing the recovery, which often begins before the news improves.
- Keep investing regularly. Dollar-cost averaging means your contributions buy more shares at lower prices.
- Check your risk. If losses kept you up at night, your mix may be too aggressive. Adjust it once things calm down, not in the middle of the panic.
- Look for quality. Bear markets can be a chance to buy strong businesses at lower valuations. Use the stock screener and AI Insights to research them.
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This article is educational and not investment advice.
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