You'll hear market commentators describe the market as "bullish" or "bearish" almost every day. The terms come from the way each animal attacks: a bull thrusts its horns upward, and a bear swipes its paws downward.
What is a bull market?
A bull market is a sustained period of rising prices. A common rule of thumb is a rise of 20% or more from a recent low. Bull markets tend to come with a growing economy, rising company earnings, low unemployment and confident investors.
Bull markets can last for years. Historically, US bull markets have lasted much longer on average than bear markets.
What is a bear market?
A bear market is a decline of 20% or more from a recent high. Bear markets are usually triggered by an economic slowdown, rising interest rates or a shock that damages confidence. Prices can fall quickly, and news headlines tend to turn gloomy.
A smaller drop of 10% to 20% is called a correction. Corrections are common and often happen within a longer bull market.
How to invest through both
Nobody can reliably predict when a bull market will end or a bear market will begin. Instead of trying to time the market, most long-term investors focus on habits that work in either conditions:
- Invest regularly. Adding a fixed amount every month means you buy more shares when prices are low.
- Diversify. Spread your money across companies, sectors and countries so no single fall sinks your portfolio.
- Set your exits in advance. Stop-loss orders limit how much you can lose on a single position.
- Keep an emergency fund in cash, so you're never forced to sell during a downturn.
This guide is for education only and isn't investment advice. Investing involves risk, including the possible loss of principal.
