Bull vs. bear market: What's the difference?

In general terms, a bull market means stock prices are rising, while a bear market means stock values are falling.

While media analysts sometimes use these descriptors loosely, they have precise meanings. It's like using the word "recession" any time the economy hits a rough patch even though it's not necessarily a widespread economic downturn lasting multiple years. Read on to learn the circumstances that define a bull vs. bear market and what it means for you.

A bull market is defined as a period when a broad stock index rises by 20% or more from a recent low. A "bullish run" is characterized by an overall feeling of optimism about the market.

Bull markets happen when investors are confident about the near-term prospects for the economy. That typically happens when the gross domestic product (GDP) is growing, unemployment is low and corporate profits are going up.

A bear market is defined as a market decline of 20% or more from a recent high, often driven by investor pessimism and economic uncertainty. Bear markets can result from weak economic indicators, such as a slowed-down or falling GDP, rising unemployment or high inflation.

Fear about how the economy will perform can create a snowball effect that accelerates the downward trend in stock valuations. Investors begin to worry that a fall in prices will continue, so they sell their shares—which, of course, tends to lead to a further drop in value.

Knowing how bullish vs. bearish markets differ can give you confidence in managing your investment risk. Here's a side-by-side look at the typical conditions that define bull and bear markets:

Bull and bear markets are determined by looking at how much prices across a large swath of the stock market move up or down in comparison to recent highs and lows. Broad stock indexes, such as the S&P 500, are used to measure the 20% threshold because they're based on hundreds of different companies in different industries. Experts look to them as a reliable indicator of the market as a whole.

Not every downturn is given the "bear market" label. Sometimes after a period of gains, stocks will go through a "correction," which is a decline of 10% to 20%. It doesn't qualify as a bear market until the descent from a recent high point is at least 20%.

Another consideration before declaring bull or bear markets is the correlations between stock performance and other economic indicators. For example, bull markets tend to occur when the GDP is growing steadily and unemployment figures are favorable. Vice versa for bearish periods. But it's important to note that hasn't always been the case. Investors might react negatively based just on the fear of what might happen—like rising interest rates or political instability—even if those concerns aren't supported by the numbers. In late 2018, for instance, the U.S. briefly entered a bear market, even though economic indicators were still strong. The opposite can happen during periods when important economic indicators are weak.

Bull markets tend to happen much more frequently than bear markets. Since the 1930s, bull markets have occurredin 78% of years.

Typically, bull markets occur when consumer confidence is high and unemployment is relatively low—that is, people feel good about spending money on goods and services. It tends to lead to strong business earnings. For example, during the longest bull market in U.S. history, from 2009 to 2020, the stock market soared more than 400%.

In contrast, bear markets happen about every 3.5 years on average. And while not all bear markets end quickly, the median recovery time for stocks to climb back to their previous peaks is about 2.4 years.

For a long-term investor, all this can be some encouragement to wait out downturns rather than trying to time the market. Dips in asset prices are almost certain to occur from time to time, but history suggests that they probably won't last very long in the big picture.

Even experienced investors may find it difficult to stay calm during a bear market, as stock prices decline over several weeks or months. But it's worth keeping in mind that a sound financial plan takes these inevitable blips into account. If you have the right asset mix for your age and financial goals, you'll likely be prepared for those slumps.

Here are five tips to help you get through the next bear market:

Markets are notoriously difficult to predict. But when looking at historical data, certain patterns emerge. Among them is that bear markets typically only last for months or a couple of years.

If you're a younger investor, you probably don't need to worry about your retirement balance falling temporarily because you're decades away from actually selling your shares. The market is likely to endure several dips before you leave the workforce. But past performance suggests that these dips will be more the exception than the rule. Historically, the stock market's average returns are more than 10% per year. Therefore, equities are still one of the best opportunities for long-term growth.

For those with a shorter time horizon—including adults at or near retirement age—the prospect of bear markets provides a different takeaway. They're a reminder to gradually adjust your portfolio toward more conservative investments like high-quality bonds and money market funds that tend to be less volatile.

The same concept applies to younger individuals who may need to tap their investments in, say, five to 10 years. That category includes adults saving for a down payment on a house or putting away money for their child's college expenses. Since you have less time to ride out a Wall Street downturn, you might consider leaning less heavily on stocks in favor of more stable asset classes.

Learn more about reevaluating your risk tolerance over time

Humans are emotional creatures. So when we confront a stock market that's losing value, we want to jump ship before things get even worse. However, selling your shares when things are at a low ebb may be one of the worst moves you can make.

One of the basic axioms of investing is "buy low and sell high." If you liquidate your stock holdings in a bear market, you're doing the opposite. In the investment world, bad times don't last forever. Unless you desperately need cash, you may be better off waiting things out.

If anything, a down market may be a time to acquire more shares because they're selling at a discount.

Cumulative price return of the S&P 500® Index during bull and bear markets.

Extreme market fluctuations—good and bad—have a way of throwing portfolios off their rhythm. So during periods of increased volatility, it's all the more important to rebalance your assets according to your investment objectives.

Suppose that you have a target asset mix of 70% stocks and 30% bonds, and it's a bear market where stocks have lost significantly more value than fixed-income assets. Suddenly, your portfolio is comprised of 60% stocks and 40% bonds. To get back to your target mix, you'll have to sell some of your bond holdings and use the proceeds to purchase more stocks.

Dollar-cost averaging is one of the simplest and most effective ways to boost your investment balance. The idea is remarkably simple: You contribute a set dollar amount every week or every month regardless of market conditions. Depending on your goals and your budget, for instance, you may decide to put $200 every month into an IRA.

The beauty of dollar-cost averaging is that your same $200 will allow you to purchase more stock or mutual fund shares when the market is in a slump because they're priced lower. If Index Fund XYZ was selling at $50 a share before the bear market but is now valued at $40, you could buy five shares instead of four. And—in the hopes that your mutual fund may recover with the rest of the market—when the fund goes back up to $50 a share, your $200 investment would be worth $250.

As long as you're investing for the long haul, a downturn of several months or even a couple of years isn't necessarily going to hurt you. If you practice dollar-cost averaging, you're benefiting every time you put money into your account and buy when shares are on sale.

Over time, the market is bound to go through peaks and valleys. In general, it's a wise approach to keep your investment strategy consistent during those fluctuations. Trying to predict stock movements or reacting emotionally when they occur doesn't often pan out.

It's also important that your portfolio has a risk profile suitable for your financial goals. A Thrivent financial advisor in your area can recommend an asset mix that best meets your unique needs.

Why are they called bull & bear markets?

That's the subject of some debate. The terms may have derived from the way that these animals attack their prey. A bull charges with its horns angled upward—a fitting symbol for markets on the rise. Meanwhile, a bear strikes with a downward swipe of its paws. Conversely, the term "bear" market may have been a nod to traders who once sold bear skins they did not yet own in the hopes that prices would fall before they had to purchase them.

How long do bull & bear markets last?

Fortunately, periods of rising stock prices tend to stay around a lot longer than market dips. Bull markets last 2.7 years on average while a typical bear market ends after 1.2 years. However, there have been times when these episodes have been much shorter or longer than the average.

Is it better to buy in a bull or bear market?

Legendary investor Warren Buffett famously said, "Be fearful when others are greedy and greedy when others are fearful." It's a recognition that stocks that have dipped in value—especially in a bear market—often gain the most during a rebound. But that doesn't mean you should consistently invest during a bull market, too. Because they tend to last longer than bear markets, stock valuations may continue to climb before the next dip.

Should I try to time the market ahead of bull or bear markets?

Timing the market is always a risky strategy, since there are so many factors that are hard to predict. Rather, focus on investing a set amount at consistent intervals, regardless of whether stocks have recently surged or sputtered.