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Feb 5, 2024

Bull vs. Bear Markets: What’s the Difference?

By Team Stash Reviewed by Heather Comella
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In this article:

Bull market and bear market are terms frequently used to describe the ups and downs of the stock market. A bullish market represents rising stock prices, as it symbolically charges ahead with confidence. Conversely, a bearish market represents declining stock prices, as it symbolically retreats down into hibernation. Understanding the contrast between bull vs. bear markets can help you feel more confident as an investor, especially when the stock market seems to be headed for a market downturn.

In this article, we’ll cover:

The history of bull and bear markets

Etymologists, financial wonks, and everyday investors have all wondered why bulls and bears became associated with the stock market. It’s likely that the jargon originated in the 1700s or 1800s. The bear may have come first, in reference to speculative investors attempting to sell bearskins. Bull was likely chosen later, as a fitting alter ego to the bear. For whatever reason, the animal imagery caught on, and we’re still using it today to indicate the conditions of the stock market and economy in different phases of expansion and contraction. The concept and definition of bull and bear markets have evolved significantly over time, however.

What is a bull market?

According to the US Securities and Exchange Commission (SEC), a bull market is defined as a time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period. When stocks are rising during a bull market, it usually indicates a time of economic expansion, that the economy is strong and investors are confident. Since 1932, the average length of a bull market has remained just under five years.

An illustration of a bull accompanies the definition for 'bull market’.

The longest bull markets in history

Since 1926, the S&P 500 Index has recorded twelve bull markets, during which the value of stocks in the index rose anywhere from 48% to 417%. The longest-running bull market in US history came to an end in March 2020 thanks to the COVID-19 pandemic. The three longest bull markets in US history were:

Post-WW2 boom (1949-1956)
The 1990s boom (1990-1999)
Post-Great Recession (2009-2020)
  • Post-war boom: began in June 1949, lasted 86 months, and saw increases of 266%
  • 1990s boom: began in October 1990, lasted 113 months, and saw increases of 417%
  • Great Recession recovery: began in March 2009, lasted 132 months, and saw increases of 330+% 

What is a bear market?

In contrast to the bull market, the SEC defines a bear market as a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period. 

An illustration of a bear accompanies the definition for 'bear market,' an essential stock market vocabulary word.

Bear markets tend to be shorter than bull markets. Since WWII, bear markets have taken 13 months on average to go from peak to trough and 27 months to get back to breakeven. The longest bear market in history ended in March 1942, lasted 61 months, and cut the S&P 500 Index by 61%. By and large, investors look for a 20% gain from a low point and steady gains over at least a six-month period to understand when a bear market has ended.

Types of bear markets

Not all bear markets are created equally. It’s helpful for investors to know what type of bear market they’re in before trading securities. A bear market may be an indicator of normal fluctuations in the stock market, or it may signal that the economy is headed for a more serious downturn. The three types of bear markets include event-driven, cyclical, and asset-bubble unwinds.

  • Event-driven bear markets: Event-driven bear markets occur when world events, like pandemics, wars, terrorist attacks, and natural disasters create chaos and uncertainty in financial markets. While these market downturns may be sudden and large, they usually have a less severe total impact and quick recoveries.
  • Cyclical bear markets: Cyclical bear markets are driven by normal fluctuations in the business cycle. The market downturns are usually as severe as event-driven bear markets, but they tend to last longer.
  • Asset-bubble unwinds: Asset-bubble unwinds occur when cyclical fluctuations in the market trigger asset bubbles to burst, leading to broad disruption in financial markets. The duration of these types of bear markets is specific to each situation, but historically they have lasted the longest and seen the largest total decline in stock values.

The key differences between bear and bull markets

Key differencesBear marketBull market
Share pricesStock prices are more likely to fall or hold steadyStock prices are more likely to rise; asset bubbles more likely to occur
InflationOften goes down due to rising unemployment and shrinking or stagnant consumer demand Often rises due to rising wages, increasing production costs, and increased consumer demand
Interest ratesHigh-interest rates are more commonLow-interest rates are more common
Common investor reactionsFocus on less risky investments, preserving capital, and maintaining stable incomeFocus on higher-risk stocks with the potential for higher returns, good equity investment returns
Length of market phaseAverage of 18 monthsAverage of 4.9 years

How to invest in bull and bear market phases

As an investor, you’ll experience both bullish and bearish markets throughout the years. When stocks are rising during a bull market, it usually means that the economy is strong, investors are confident, and the demand for securities tends to go up. As a result, major markets typically trend upward. In contrast, during a bear market, investors are generally pessimistic about the economy and may be looking to sell their investments. 

Whether it’s better to buy stocks in a bull vs. bear market isn’t a simple question; every market is unique, as are each individual’s circumstances. Investing in any kind of market comes with risk, including the risk that you could lose money, so it’s important to understand best practices for investing in both bull and bear market phases. 

Investing in a bull market

When stock prices are rising and optimism abounds, how do you decide where to invest your money? Many investors are willing to take on more risk in a bull market, but you may want to think carefully about your personal risk profile and have a long-term strategy in mind.

  • Invest in cyclical stocks. Cyclical stock prices are affected by macroeconomic or systematic changes in the overall economy, so they’re known for following the cycle of expansion, peak, recession, and recovery. They tend to do well during a booming economy.
  • Invest in exchange-traded funds (ETFs), index, and mutual funds. These funds tend to replicate the movements of the index they follow, so if the index is doing well, your investments should be doing well, too. 
  • Learn about dollar-cost averaging. Investing a fixed amount each month can be a smart move in bull-ish times. When the price of the security is high, you’ll buy a lower number of shares, and when it’s low, you’ll buy a higher number of shares. 
  • Rebalance your investments. Set a target for your investments and be disciplined to stick to that target. This may require you to rebalance your investments during volatile markets to maintain your target portfolio. This disciplined approach can add to investment returns over time by allowing you to cash in on short-term market fluctuations. A robo-advisor investment manager is a great way to automate rebalancing and keep your portfolio invested to your intended investment target.
  • Hold onto your investments. When the value of your investments goes up, the urge to sell at a profit may strike. However, it is difficult to time the peak. Following a buy-and-hold strategy allows you to build wealth over the long term without the need to time your trades.

Investing in a bear market

During times of pessimism and low confidence, emotions can run high for investors. Some people are tempted to sell all their securities to avoid losing money or, conversely, buy up what they can at a lower price. But going to extremes is usually not the answer. Instead, refine your approach to investing during a bear market by using the following strategies: 

  • Don’t sell investments unless you absolutely have to. When the value of your portfolio drops in a bear market, chances are that your invested money will return to its previous value once the market has subsided. It may take a few years, so patience is key.
  • Take advantage of dollar-cost averaging. This is just as important in a bearish market as it is in a bullish one because it allows you to purchase more shares when prices are low without increasing the amount of money you invest on your regular schedule. 
  • Automate your investments. Robo-advisors are digital financial advisors that automatically select and manage your portfolio based on your investment preferences. The algorithm takes care of trading and rebalancing your portfolio for you, taking the emotion out of investing during stressful times.
  • Diversify your portfolio. Holding a wide range of investment types reduces risk because a large drop in an individual stock is balanced by gains in other securities. Diversity becomes especially important in a bear market when stock prices fall; your investments in less volatile securities like bonds may help cushion the blow.
  • Invest in sectors that perform well during bear markets: Consumer staples, healthcare, utilities, and other essential sectors tend to do better during bear markets since they are in demand regardless of the condition of the stock market. These are known as defensive stocks.
  • Focus on the big picture. Remember that the market will eventually turn around. Investing with the long-term in mind and avoiding knee-jerk emotional reactions can help you weather a bear market. 

Are we in a bull or bear market in 2024?

As of January 2024, the S&P 500 was considered by investing experts to be in a bull market, with stocks in this index trading above highs previously set in 2022. The run up in this current bull market started in October 2022, when the most recent bear market ended. It’s difficult to predict when the market will change course. Some economic conditions remain strong such as low unemployment and inflation has slowed (although still above the Federal Reserve’s target of 2%). At the same time Interest rates remain high which fosters concerns of a potential recession. In all markets, experts recommend diversifying your holdings and considering your risk tolerance to select an investment strategy that you’ll be able to stick with through all the market’s ups and downs.

Rolling with the bears and bulls of the stock market 

Whether the market is charging forward or retreating for a little nap, investors can learn to navigate the ups and downs. Investment of any kind comes with risk, especially as the economy fluctuates. The Stash Way™ is an investing philosophy that focuses on regular investing with a diversified portfolio and using a buy-and-hold strategy that focuses on building wealth over the long term, all of which can help you navigate the inevitable ups and downs of bull and bear markets.

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