The difference between a bull market and a bear market comes down to market direction and investor sentiment. Bull markets are characterized by rising prices and optimism, while bear markets involve falling prices and increased uncertainty.

Because market conditions can influence everything from portfolio performance to investor behavior, understanding these cycles is an important part of long-term investing. Here’s what investors should know about bull markets, bear markets, and how to navigate changing market conditions.

What is a Bull Market?

A bull market is a period when stock prices are rising and investor confidence is generally strong. While there is no official start date, a bull market is commonly defined as a sustained increase of 20% or more from a recent market low.

In this type of market, the economy is thriving. Unemployment is low or declining, and while there may be periodic downturns, they’re minor in the grand scheme of things, and the market continues an overall upward trend. Analysts who are “bullish” have an optimistic view of how investments are performing or will perform. Generally, things are going well.

Common Signs of a Bull Market

• Rising stock prices across major market indexes
• Strong corporate earnings and business growth
• Positive investor sentiment and confidence
• Economic expansion and job growth
• Increased consumer spending

What is a Bear Market?

By contrast, a bear market is a period of declining stock prices. The commonly accepted definition of a bear market is when prices fall by 20% or more from a recent high.

In this type of market, the economy is receding. Unemployment may rise, and while there may be periodic upswings, they aren’t significant enough to trigger the market to turn back over to bull territory. Analysts described as “bearish” have a pessimistic view of how investments are performing or will perform.

Common Signs of a Bear Market

• Sustained declines in stock prices
• Increased market volatility
• Lower investor confidence
• Slowing economic growth
• Weakening corporate earnings 

Differences Between Bear vs. Bull Markets

The primary difference between a bull market and a bear market is the overall direction of stock prices and investor sentiment.

Understanding the differences between these market environments can help investors maintain perspective and make informed decisions during periods of both growth and volatility.

Bear Market vs. Correction vs. Pullback

When the markets decline, people get anxious. However, we must consider the severity of these selloffs. Just because there’s a market downturn doesn’t automatically mean we’re heading into bear territory. Depending on how significant the decline is, it could just be a pullback or a correction.

Pullback

A pullback is a market drop of 5–10%, typically happening in a short period. It’s usually just a dip from a recent high and does not affect the continuous upward trend of the bull market in which it exists. Pullbacks are normal parts of the market cycle and shouldn’t be viewed as a harbinger of dark days to come.

Correction

A correction is when the market drops 10–20%, and this period can last a few months. Corrections usually exist in times of volatility. Though they make investors anxious, they can also signify a watershed moment for markets: After three or four months, the markets could pick up again, or they could decline even further, at which point they may decline into bear territory.

While more significant than a pullback, a correction isn’t necessarily a sign that a bear market is looming. In fact, since 1974, there have been 24 market corrections, and only five of them turned into bear markets.

How Long Do Bull and Bear Markets Last?

There is no set timeline for market cycles. Some bull and bear markets last only months, while others can continue for years.

Historically, bull markets have tended to last longer than bear markets. However, past performance does not guarantee future results, and every market cycle is influenced by unique economic and market conditions.

Rather than trying to predict exactly how long a market cycle will last, many investors focus on maintaining a long-term investment strategy aligned with their goals.

Investing During Market Cycles

Market cycles are a normal part of investing, but investors don’t have to predict them perfectly to be successful. Maintaining a disciplined, long-term strategy can help you stay focused on your goals through both bull and bear markets.

How to Invest During a Bear Market

Bear markets can be challenging emotionally, but they may also create opportunities for long-term investors. During market downturns, investors may benefit from:

• Staying focused on long-term goals
• Maintaining a diversified portfolio
• Continuing regular contributions when appropriate
• Reviewing risk tolerance and asset allocation
• Avoiding emotional investment decisions

Investing During a Bull Market

During a bull market, it can be easy to become overly optimistic or take on more risk than intended. Investors may benefit from:

• Staying disciplined and avoiding performance chasing
• Maintaining portfolio diversification
• Periodically reviewing and rebalancing investments
• Keeping long-term goals in focus
• Ensuring risk exposure remains aligned with objectives

Understanding Market Cycles Can Help You Invest with Confidence

Bull and bear markets are both natural parts of the investing journey. While market conditions may change, a disciplined investment strategy built around your goals, time horizon, and risk tolerance can help you navigate periods of both growth and volatility.

Rather than trying to predict the next market cycle, investors are often better served by focusing on a long-term plan and making decisions that align with their overall financial objectives.

If you have questions about how current market conditions may affect your financial plan, consider speaking with an advisor who can help you evaluate your options and stay focused on your long-term goals.

Bear vs. Bull Market FAQs

Is a bear market the same as a recession?

No. A bear market refers to a sustained decline in stock prices, while a recession is a broader economic downturn typically characterized by reduced economic activity. Although bear markets and recessions can occur together, one does not necessarily cause the other.

What causes a bull market?

Bull markets are often driven by strong economic growth, rising corporate earnings, favorable business conditions, and increased investor confidence. Lower interest rates and improving economic outlooks can also contribute to rising markets.

What causes a bear market?

Bear markets can result from a variety of factors, including economic slowdowns, rising interest rates, inflation concerns, geopolitical uncertainty, or declining corporate earnings. In many cases, multiple factors contribute to prolonged market declines.

Is it good to buy in a bear market?

For many long-term investors, a bear market can be a good time to buy because stock prices are often lower than they were before the downturn. While it’s impossible to know exactly when the market has reached its bottom, continuing to invest during periods of market weakness may create opportunities for future growth. Rather than trying to time the market, many investors focus on staying invested and maintaining a long-term perspective.

How can investors prepare for market downturns?

Investors can prepare for market downturns by maintaining a diversified portfolio, establishing an appropriate asset allocation, keeping an emergency fund, and focusing on long-term financial goals. Working with a financial advisor can also help investors navigate periods of market uncertainty.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor’s specific circumstances. Investing involves risk, including possible loss of principal.

This article was originally published on 7/26/22.

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