Bull vs. Bear Markets: What's the Difference?

The terms ‘bull market’ and ‘bear market’ are commonly used to describe conditions where stock prices are either rising or falling substantially. Understanding these market phases may help investors manage expectations, emotions, and broad risk planning. This blog details the key differences between bull and bear markets to help investors make informed decisions.

Table of contents

• Bull vs. bear markets: An overview
• Bull market
• Bear market
• Key differences
• Gauging market changes
• What to do in each market
• Is a bear market a suitable time to buy?
• Where the terms ‘bull’ and ‘bear’ come from

Bull vs. bear markets: An overview

The term bull market usually describes a phase when major market indices rise by about 20% or more from a recent low. It generally signals improving sentiment and a higher risk appetite among investors.

A bear market refers to a phase when a major market index falls by about 20% or more from a recent high, accompanied by weaker sentiment and reduced willingness to take risks.

These thresholds are not official regulatory definitions. They are conventional markers used by analysts and the media to describe broad market moods, not to predict what will happen next.

Bull market

In a bull phase, optimism often increases demand for equities, and favourable news may prevail. Economic indicators such as growth and employment may appear supportive, and investors may show higher risk appetite.

Practical takeaways include staying focused on long-term goals, reviewing costs, keeping asset allocation aligned with investment horizon and risk capacity, and avoiding impulsive reactions to short-term market movements.

Bear market

Bear phases are marked by extended declines of around 20% or more, reduced risk-taking, and a preference for relatively more stable assets. Such phases vary in duration. Historical trends show they may last from a few months to a few years.

Investors may focus on reviewing risk exposure, ensuring sufficient liquidity, and avoiding panic-driven decisions during these phases. They may also keep an eye out for potential long-term investment opportunities.

Key differences

Here are important contrasts between bull and bear markets, useful for orienting expectations:

• Price direction: Bull phases generally show upward trends (often +20% from a prior low), while bear phases indicate declines (often –20% from a prior high).
• Sentiment: Bulls reflect improving confidence; bears reflect caution and lower risk-taking.
• Market breadth and flows: Bull phases may see broader participation across sectors, while bear phases often lead investors to reduce exposure to high-risk assets.
• Frequency and length: Historically, bear markets have occurred periodically and may last several months to over a year, but this can vary widely.

Gauging market changes

Investors may track a mix of market and economic signals rather than relying on a single data point. Some useful indicators include:

• Index movement relative to recent peaks or troughs.
• Sector breadth, showing whether gains or declines are broad or concentrated.
• Macroeconomic context such as growth, inflation, and interest-rate trends, which influence risk-taking behaviour. Analysts and media often use the 20% convention to describe such shifts.

What to do in each market

Investing across market cycles aligns with disciplined habits. Rather than trying to time markets, investors may stay focused on strategy and diversification.

• Across cycles: Maintain your asset allocation according to goals and horizon. Rebalance periodically. Higher costs or loads may reduce potential net returns, so cost efficiency matters.
• In bull phases: Stay aligned with your plan and risk profile. Some investors may review portfolios to realign with goals but avoid reacting to short-term optimism.
• In bear phases: Continue disciplined contributions if your investment horizon allows. Review your risk exposure and ensure an emergency buffer. Avoid panic-driven selling.
• An approach that may be suitable across market conditions is systematic investing by making regular contributions at fixed intervals rather than trying to identify precise market highs or lows.

However, these strategies require investor discipline during market volatility and do not guarantee profits or eliminate the risk of losses in declining markets.

Is a bear market a suitable time to buy?

While prices may be lower during bear phases, predicting exact market turning points is difficult and attempting to do so carries significant risk. Investors should consider their risk tolerance, investment horizon, and financial situation before making investment decisions during market downturns.

Alternatively, a rules-based approach such as investing a fixed amount per month through a systematic plan removes the need to time the market and may help average purchase costs over time.

If your investment horizon is short or liquidity needs are near-term, bear conditions may warrant careful review of your risk tolerance and financial priorities.

Where the terms ‘bull’ and ‘bear’ come from

The imagery comes from how each animal attacks: a bull thrusts upward with its horns, while a bear swipes downward with its paws. Historically, the term ‘bear’ is linked to 18th-century English traders known as bear-skin jobbers, who would sell the bear’s skin before catching the bear — that is, sell something they didn’t yet own, anticipating a price decline. Over time, bear came to describe those expecting markets to fall, while bull became its natural opposite, representing optimism and rising prices.

Conclusion

Understanding bull and bear markets helps investors interpret broad market movements and manage expectations. Instead of trying to forecast each turn in sentiment, maintaining a well-defined strategy, investing consistently, and aligning risk with goals may support potential wealth creation over time. Markets will rise and fall—that cycle is inherent to investing. Remaining disciplined and reviewing plans periodically can help investors stay relatively steady through both bulls and bears.

Frequently Asked Questions

How long do bull and bear markets usually last?

Durations vary, and there is no fixed rule.

Where do the terms ‘bull’ and ‘bear’ come from?

These terms describe market direction based on animal attack styles: a bull’s upward thrust represents rising prices, while a bear’s downward swipe represents falling prices.

Does it make sense to buy during a bear market?

Predicting market bottoms is difficult. A systematic plan such as an SIP that involves investing a fixed amount at regular intervals may help average costs and reduce the need for timing decisions.

What should investors do in each market condition?

They may consider maintaining allocations aligned with their long-term goals and investment horizon, rebalancing on a schedule, and continuing disciplined investing rather than reacting to short-term market changes.

How do investor emotions affect bull and bear markets?

Optimism often drives buying during bull phases, while caution and loss aversion dominate in bear phases. These emotional cycles influence investor behaviour and market sentiment.

What economic indicators signal a bull or bear market?

Movements in major indices relative to recent peaks or lows, along with economic factors such as growth, inflation, and interest-rate direction, may help identify shifts in sentiment.

Past performance may or may not be sustained in future

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

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