Bear vs. Bull Market, Explained

Is the market bullish or bearish? It can be difficult to tell, but it helps to know what each of these market conditions means.

Here's a breakdown of bear vs. bull markets and what it means for your investments.

Bull market meaning

A bull market is a thriving buyer-friendly stock market. A typical bull market means unemployment is low, investment returns are up, and consumer confidence is on the rise.

Bull markets can last a long time, like the period between the end of the US housing market collapse and the start of the COVID-19 pandemic. Both of these black swan events bookended an otherwise thriving market.

Bear market meaning

A bear market refers to a poorly performing stock market that results in price corrections up to 20% in the red. A typical bear market means unemployment is higher, the economy is slower, and consumer confidence is on the fritz. In a bear market, more people may keep cash, savings, or fixed-income securities.

The stock market always comes out of bear markets, but they can be rather long-lasting. The pandemic-induced market crash led to a bear market that lasted about two months.

Bull and bear markets can occur within sectors

Even if an entire market isn't dealing with a bear or bull market, certain industries or sectors can feel the shift.

For example, tech stocks experienced a major selloff in the third quarter of 2021. In September, the tech-heavy Nasdaq composite dropped 5.31 percent. Over the course of October, the sector has rebounded.

How to tell if a stock is 'bullish' or 'bearish'

You can dig even deeper to determine if individual stocks or funds are behaving bullish (aka confidently rising) or bearish (aka suffering a prolonged period of decline).

The easiest way to do this is to analyze charts and look at the general pattern of where the stock has moved over the last few months. You can pair this with rumors and news about the company to determine where traders are headed.

How bulls and bears impact your investments

Investors can spot opportunities in bull and bear markets. Even when stocks are down, investors commonly "buy the dip" to capitalize on future growth.

Indian company Anand Rathi's co-founder Pradeep Gupta reminds us that "5-10% market corrections are common even during a structural bull run." This means that volatility can occur even during a growth period. On the same token, bear markets are often quick and painless, but they can drag on under the right circumstances.

That's why it's so important to have a strategy and stick to it—so you don't get carried away by your feelings in the midst of a bull or bear run.

In a Nationwide survey, 65% of investors say they're concerned about a US bear market over the next 12 months. Outside events can cause turbulence even in the most balanced investment portfolio, but knowing your priorities—like time horizon and risk tolerance—is key.