Financial news is full of animals. A rising market is called a bull market, and a falling one is a bear market. The terms are centuries old, and one popular explanation is that a bull attacks by thrusting its horns upward while a bear swipes its paws down. Whatever the origin, the labels describe the two basic moods of financial markets.
Defining the Terms
By convention, a bear market begins when a major index such as the S&P 500 falls 20% or more from its most recent high. A bull market is a sustained rise, commonly marked as a gain of 20% or more from a recent low. A smaller drop of at least 10% is called a correction. Corrections are frequent and usually brief, and most of them never turn into bear markets. The 20% line is a rule of thumb rather than a law, but it is widely used by analysts and the press.
What Drives Them
Bull markets tend to appear when the economy is growing, companies are earning more, unemployment is low, and borrowing is cheap. Confidence feeds on itself: rising prices attract more buyers, which pushes prices higher. Bear markets are usually triggered by a threat to that growth, such as rising interest rates, a recession, a financial crisis, or an unexpected shock. Fear spreads in the same self-reinforcing way. Investors sell to avoid further losses, and their selling deepens the decline.
What History Shows
The two phases are not equal. Historically, bull markets in U.S. stocks have lasted for years, while bear markets have typically been measured in months. Gains during the long upswings have far outweighed losses during the downturns, which is why the market has risen over time. Some declines were severe. Stocks lost more than half their value during the financial crisis of 2007 to 2009. The fastest bear market on record came in early 2020, when the pandemic sent stocks down by about a third in roughly a month. In both cases the market eventually recovered and reached new highs.
How Investors Should Respond
The greatest danger in a bear market is often the investor’s own reaction. Selling after prices have fallen locks in losses, and those who leave tend to miss the recovery, because the strongest days frequently come early in a rebound and without warning. Bull markets carry a quieter risk. Long periods of gains encourage overconfidence, heavy borrowing, and the belief that prices can only go up. For long-term investors, the more reliable approach is to keep investing steadily through both.
Conclusion
Bull and bear markets are a normal part of how markets work. Each reflects a mix of economic reality and human emotion, and no one has found a dependable way to predict when one will give way to the other. Knowing that downturns are expected, temporary, and historically followed by recovery makes them easier to endure. Patience has mattered more than timing.