What Are the Differences Between a Bear Market vs a Bull Market?

Move over, Scorpios and Capricorns. When it comes to the stock market, there are two better signs to consider: the bull and the bear. According to market “astrology,” a bear indicates the market is in decline while a bull signals the market is growing.

For better or worse, both bull markets and bear markets are a part of the stock market lifecycle: You must experience the lows of the bear market to reach the highs of the bull. You’ll live through your fair share of each, and knowing what to expect can help you better handle your investment decisions through them.

What Is a Bear Market?

A bear market is when stock prices on major market indexes, like the S&P 500 or Dow Jones industrial average, fall by at least 20% from a recent high. This is in contrast to a correction, which is a fall of at least 10% and tends to be much shorter lived.

A bear market is often caused by a slowing economy and rising unemployment rates. During this period, investors generally feel pessimistic about the stock market’s outlook, and the changes in the stock market may be accompanied by a recession. But a bear market doesn’t always indicate that a recession is coming. In recent history, a recession has followed a bear market about 70% of the time.

During a bear market, many investors may want to sell their investments to protect their money, get access to cash or move their holdings to more conservative securities. It may also cause investors to sell their investments for less than they paid for them, which can effect their abilities to reach their financial goals long term.

How Long Does a Bear Market Last?

Historically, bear markets tend to be shorter than bull markets. The average length of a bear market is just 289 days, or just under 10 months.

Some bear markets have lasted for years, while others only ran for a few months. The longest bear market occurred from March 1937 until April 1942—The Great Depression—and lasted for 61 months. In recent decades, bear markets have generally gotten shorter in length, though. In 1990, for example, a bear market lasted for just three months.

It’s important to note, though, that even during bear markets, the stock market can see big gains. For instance, in the last two decades, over half of the S&P 500’s strongest days happened during bear markets.

What Is a Bull Market?

A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance.

Bull markets indicate that the economy is strong and unemployment rates are generally low, which can instill investors with even more confidence and provide people with more income to invest. This can result in some massive growth: Stock prices go up 112% on average during bull markets.

How Long Does a Bull Market Last?

Bull markets can last for a few months to several years, but they tend to be longer than bear markets. They also tend to be more frequent: Bull markets have occurred for 78% of the past 91 years.

The average bull market lasts 973 days, or 2.7 years. The longest bull market lasted from 2009 to 2020 and resulted in stock growth of more than 400%.

What Should You Do in a Bull vs Bear Market?

While bull markets generally don’t cause people too much stress, bear markets often inspire anxiety and uncertainty. How you should handle a bear market, though, is dependent on your investment timeline.

The Bottom Line on Investing Through Bear and Bull Markets

While bear markets can be scary, they are a natural part of the economic cycle and often lead to even stronger market returns. A diversified portfolio constructed for your financial goals can prepare you to confidently stay the course and weather any kind of market.