Bull and bear are the most commonly used terms for market conditions. The terms are used to describe how stock markets are doing in general, whether they are appreciating or depreciating in value.
While some investors can be bearish, the majority of investors are bullish. Bear markets can be more dangerous to invest in, as many shareholders lose value and prices become volatile.
For an investor, the market’s direction is important to your portfolio. People should understand how each of the market conditions may impact investments.
Come let’s get to know more about these two terms.
A bull market is defined as a market that is on the rise and where the conditions of the economy are usually favorable. On the other hand, bear markets exist in an economy where most stock market values are declining. Investor’s attitudes indeed influence the financial markets, these terms help us to know better about how investors think about the market and the ensuing economic trends.
A bull market shows a sustained increase in prices. In equity markets, this market demonstrates a rise in the price of companies’ shares.
A bear market is one in decline. A market is considered bear only if it falls 20% or more from recent highs. In this type of market, share prices are likely to fall continuously.
Now, let’s see 10 important things to know about bear markets.
- Look for 20%: Market cycles are calculated from peak to trough. So to consider it a bear, the stock index should reach the bear territory when the closing price drops at least 20% from its most recent high. A bull market is the reverse of this, which means the closing price gains 20% from its low.
- Sticks lose 35% on average in a bear market: On the other hand, stock gains 111% on average during a bull market.
- Bear markets are normal: 27 bear markets in the S&P 500 Index since 1928. 28 bull markets are also there and stocks have increased over time.
- Bear markets tend to be short-lived: The average length of a bear market is calculated as 289 days or approximately 9.6 months. This is considerably shorter than the average span of the bull market, which is 965 days or 2.6 years.
- Every 3.5 years: 3.5 years is the long-term average frequency between bear markets. The majority of them consider the bull market that ended in 2020 to be the longest on record, but technically, the bull that ran from 1987 December till the dot com crash in March 2000 is the longest one.
- Bear markets have been less frequent since World War Ⅱ. A total of 12 bear markets were present between the duration of 1928 and 1945, one about every 1.5 years. After 1945, it became 15, which is about every 5.1 years.
- During a bear market, approximately 42% of the S&P 500 Index’s strongest days in the last 20 years. Also, during the first two months of a bull market, another 36% of the market’s best days have happened.
- A bear market doesn’t always signal an economic recession. 27 bear markets have been there since 1928, but recessions during that time were just 15.
- With a 50-year investment horizon, you can expect to experience around 14 bear markets, more or less – indicating that significant market downturns are a normal part of long-term investing.
- Bear markets can be painful, but collectively, markets are positive most of the time. When we take the market history from the last 94 years, bear markets have comprised only about 21.4 of those years. In another way, stocks are on the ascending side with 78% most of the time.
Bear markets have been common.
S&P 500 Index declines of 20% or more, 1929-2023
| Start and end date | % price decline | Length in days |
| 9/7/1929-11/13/1929 | -44.67 | 67 |
| 4/10/1930–12/16/1930 | -44.29 | 250 |
| 2/24/1931–6/2/1931 | -32.86 | 98 |
| 6/27/1931–10/5/1931 | -43.10 | 100 |
| 11/9/1931–6/1/1932 | -61.81 | 205 |
| 9/7/1932–2/27/1933 | -40.60 | 173 |
| 7/18/1933–10/21/1933 | -29.75 | 95 |
| 2/6/1934–3/14/1935 | -31.81 | 401 |
| 3/6/1937–3/31/1938 | -54.50 | 390 |
| 11/9/1938–4/8/1939 | -26.18 | 150 |
| 10/25/1939–6/10/1940 | -31.95 | 229 |
| 11/9/1940–4/28/1942 | -34.47 | 535 |
| 5/29/1946–5/17/1947 | -28.78 | 353 |
| 6/15/1948–6/13/1949 | -20.57 | 363 |
| 8/2/1956–10/22/1957 | -21.63 | 446 |
| 12/12/1961–6/26/1962 | -27.97 | 196 |
| 2/9/1966–10/7/1966 | -22.18 | 240 |
| 11/29/1968–5/26/1970 | -36.06 | 543 |
| 1/11/1973–10/3/1974 | -48.20 | 630 |
| 11/28/1980–8/12/1982 | -27.11 | 622 |
| 8/25/1987–12/4/1987 | -33.51 | 101 |
| 3/24/2000–9/21/2001 | -36.77 | 546 |
| 1/4/2002–10/9/2002 | -33.75 | 278 |
| 10/9/2007–11/20/2008 | -51.93 | 408 |
| 1/6/2009–3/9/2009 | -27.62 | 62 |
| 2/19/2020–3/23/2020 | -33.92 | 33 |
| 1/3/2022–10/12/2022 | -25.43 | 282 |
| Average | -35.24 | 289 |
The first part is over, now we are going to explore the bull market.
What is a bull market?
We have briefly discussed the bull market, which is a period of upward-trending prices. A new bull is initiated once the price goes beyond at least 20% off the most recent market bottom.
Apples and oranges: Most of the time, the stock market and the economy move similarly, but they are not the same. The stock market is a forward-looking indicator, so it shows investor expectations for the next year, this says that the stock can even rise if the economy is sluggish.
Bulls go bigger: Bull and bear markets are very common. The S&P 500 Index has experienced 27 of each since 1928 (FIGURE 1), even though bulls have tended to be stronger and longer. As already mentioned, bull markets have gained 115% over 2.7 years while bear markets have lost 35% and lasted less than a year.
Are we in a bull market?
It might take weeks or even months for the market to move 20% off a low. One trickiest part in this is that we will not be able to know until after the fact, since it is possible for the market to retest previous lows after rallying by 20%.
Bulls are strongest out of the gates: When we analyze the history, we can see that the first half has outperformed the second half.
Snoozing may mean losing: If you are waiting for the right time to invest, you might miss out on many of the market’s strongest days since a new bull is only identifiable once it’s underway. Taking history as the reference, the first month of a new bull gained an average of 13.6%; in the subsequent three months, new bulls have typically risen 25.3% on average.
All shapes and sizes: It has been recorded that the longest bull was more than 12 years old and rose by a whopping 582%. In contrast, the shortest one has lasted 25 days and still generated a return of 27%.
Stronger today than yesterday: In total, the S&P 500 Index has tended to gain an average of 114% during bull markets. They have been getting stronger since the 1970s: of the 27 bulls since 1928, the 18 before 1970 gained about 78% on average.
Don’t let it: You will be surprised to witness the bull markets set new records constantly while the other one is going to drop. If you are trying to sell at the peak, you might miss out on upcoming gains, so sticking on to the long-term is a safer bet.
How can I make the most of a bull?
Working with a financial professional can help make sure your portfolio is prepared for all parts of the market cycle.