Bull Market vs. Bear Market: What the Terms Actually Mean
Financial headlines love animal metaphors. FINRA's vocabulary guide for stressed markets defines them plainly: a bear market is when a stock or bond index falls and keeps falling, with a decline of 20 percent or more in a broad market index generally marking the threshold. A bull market is the opposite: a large increase in prices.
What happens in a bear market?
Prices fall across a wide slice of the market, not just a few companies. FINRA notes that related terms often come up at the same time: a correction is a smaller decline, and extreme one-day drops can trigger market-wide circuit breakers, which pause trading when the S&P 500 falls 7% or 13% before 3:25 p.m. Eastern, and stop it for the day at a 20% drop.
What happens in a bull market?
Prices rise broadly and investors feel confident. Bull markets can last years, but they do not move in a straight line, and no one rings a bell at the top or the bottom. The labels are usually clear only in hindsight.
What should a regular investor do?
The evidence-based guidance from regulators is boring on purpose: markets cycle, and trying to jump in and out at the right moment is very hard even for professionals. A plan you can stick with through both kinds of markets, built on diversification and regular contributions, matters more than predicting the next turn. Investments can always lose value, in any kind of market.
Frequently asked questions
How long do bear markets last? There is no fixed length. Some are over in months; others take years to recover. Anyone who claims to know in advance is guessing.
Should I stop investing during a bear market? Selling after a drop locks in losses and risks missing the recovery. Many investors instead keep contributing on schedule, which buys more shares at lower prices.
Sources and further reading: FINRA, "Key Terms for Tough Times: The Vocabulary of Stressed Markets" (https://www.finra.org/investors/insights/key-terms-tough-times-vocabulary-stressed-markets); FINRA, "Volatility" (https://www.finra.org/investors/investing/investing-basics/volatility).