Bull market vs bear market: what’s the difference?

Key takeaways

1. A bear market is a 20% downturn in stock market indexes from recent highs.
2. A bull market occurs when stock market indexes are rising, eventually hitting new highs.
3. Historically, bull markets tend to last longer than bear markets.
4. Bear and bull markets can affect investor confidence and behavior.

A bear market refers to periods when stock prices are declining, while a bull market is when prices are rising. Though they may appear to be opposites, bull and bear markets are not just reverse versions of each other.

Here’s what you need to understand about bull and bear markets, including the key distinctions between them.

What is a bear market?

A bear market occurs when a stock market index drops by at least 20% from its recent highs. Stock market indices, such as the Dow Jones Industrial Average, Nasdaq Composite, S&P 500®, or Russell 2000, are used by investors to assess overall market performance.

What is a bull market?

A bull market represents a period of rising market index values. Unlike bear markets, bull markets don't have a strict definition. Some sources define them as a 20% increase from recent lows, while others avoid specific thresholds. The key point is that a bull market signals a trend of increasing stock prices.

Duration of Bull and Bear Markets

Bull markets tend to last longer than bear markets, largely because stock prices generally rise over time. Since 1872, there have been 26 bull markets and 26 bear markets. The median duration of a bear market is 19 months (less than 2 years), with a median decline of 33%, although their length can range from 1 month to as long as 113 months (nearly 9.5 years). In contrast, bull markets have a median duration of 42 months (3.5 years), with a median gain of 87%, and can last anywhere from 14 to 98 months (about 8 years).

Historically, bull markets have lasted twice as long as bear markets and seen prices rise more than double the typical decline during bear markets.

Impact on Investor Behavior

Bull markets, characterized by rising prices, tend to inspire optimism and confidence among investors. As prices climb, more people are drawn to invest, driving even greater demand for stocks. This cycle can push prices—and gains—higher as new investors join in, creating a self-reinforcing upward trend.

Bear markets, on the other hand, evoke pessimism and caution. As stock prices fall, fewer people are willing to invest, and more begin selling to avoid further losses, unsure of how far prices might drop. This reduced demand drives prices even lower, creating a downward spiral similar to the upward momentum seen in bull markets.

Connection Between the Market and the Economy

While the stock market and the economy influence each other, they are not the same. The stock market reflects the performance and future expectations of publicly traded companies, while the economy measures a country’s output and consumption of goods and services. Stock prices can rise even during economic slowdowns, and vice versa.

A strong economy—marked by low unemployment, rising wages, healthy consumer spending, and moderate inflation—often coincides with bull markets. However, it's hard to say whether the economy fuels the bull market or the bull market boosts the economy. The two tend to reinforce each other as investments drive both stock prices and economic activity.

Similarly, a struggling economy, with rising unemployment and falling consumer spending, can lead to a bear market as companies seem less attractive to investors. Stock prices fall, potentially worsening the economic downturn. However, bear markets don't always coincide with recessions—about 25% of bear markets have occurred without an accompanying recession.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.