You hear these terms constantly in financial news. The market is "bullish." We are entering a "bear market." But what do they actually mean, and more importantly, what should you do about them?
The Definitions
Bull market: A sustained period where stock prices are rising or expected to rise. Generally defined as a 20% or greater increase from a recent low.
Bear market: A sustained period where stock prices are falling. Generally defined as a 20% or greater decline from a recent high.
The terms come from how each animal attacks. A bull thrusts its horns upward. A bear swipes its paws downward.
How Long They Last
Bull markets tend to last much longer than bear markets.
Since 1928, the average bull market has lasted about 2.7 years with an average gain of 114%. The average bear market has lasted about 9.6 months with an average decline of 36%.
This is important context. Bear markets feel devastating in the moment, but historically they are shorter interruptions in longer upward trends.
What Drives Each
Bull markets are driven by economic growth, rising corporate earnings, low unemployment, consumer confidence, and accommodative monetary policy (low interest rates).
Bear markets are driven by economic contraction, falling earnings, rising unemployment, geopolitical crises, or tightening monetary policy (rising interest rates).
What to Do During a Bull Market
Stay disciplined. It is easy to become overconfident when everything is going up. Do not abandon your investment process just because it feels like you cannot lose.
Rebalance. If stocks have grown to a larger percentage of your portfolio than planned, consider rebalancing back to your target allocation.
Do not chase. Just because a stock has gone up 100% does not mean it will go up another 100%. Late-stage bull markets are when the worst buying decisions tend to happen.
What to Do During a Bear Market
Do not panic sell. This is the most important rule. Selling during a bear market locks in losses and prevents you from participating in the recovery.
Keep investing if you can. Dollar-cost averaging during a bear market means you are buying at lower prices. Historically, some of the best long-term returns come from investing during downturns.
Review, but do not react. Check whether the fundamentals of what you own have changed. If the businesses are still sound, the lower price is not a reason to sell.
Remember that bear markets end. Every single one in history has been followed by a recovery.
The Mistake Most People Make
Most investors do the opposite of what they should. They buy aggressively during bull markets (when prices are high) and sell desperately during bear markets (when prices are low). This is buying high and selling low, the exact opposite of building wealth.
Understanding these cycles in advance helps you resist that instinct when the moment arrives.
The Progressive Trailblazer helps you understand what you own so you can hold with conviction through market cycles. Educational only. Not financial advice.