Photo of man reviewing market conditions to determine his investment options.

Bull vs. bear market: What’s the difference?

Financial markets go through cycles of boom and bust, highs and lows. In investment terminology, they’re called bull and bear markets.

Using the terms bull or bear is simply a way of describing whether the markets are gaining or losing over a certain period. This may matter to you if:

  • you’re a long-term investor. The daily market ups and downs are most likely noise you may choose to ignore, but longer-term trends can affect your returns.
  • you’re a short-term investor. Daily market fluctuations may have more of an impact on your investments.
Image of market bull and up arrow.

Bull markets are extended periods of strong gains of 20%. Think of a bull with its horns pointed up and ready to attack.

Image of market bear and down arrow.

Bear markets are extended periods of losses of at least 20%. Think of a bear with its nose pointed down and claws scratching down.

Bull market

Most recent bull market: Earlier this year, we ended the longest bull market in history. The S&P 500 index rose 408.9% from the bottom tick in March 2009 to the top in February 2020.1 Bull markets have historically been longer and stronger than bear stock markets, and generally take place when the economy is strong.

What it may mean for you: Not investing in the markets, or investing too conservatively during bull markets, may be a risk—especially if you’re a younger investor. That’s because those gains may be a missed opportunity to grow your savings, taking advantage of compound interest.

When you invest, just remember to review and consider rebalancing (PDF) your investment choices periodically. Need a primer on that? Read “Cook up your asset allocation plan.”

Bear market

Most recent bear market: See the sidebar, “Hello bear,” to learn about the one we've been in. A memorable bear market lasted 1.3 years from 2007–2009 (including a recession), and sent the S&P 500 down by 50.9%.2 What followed was an unprecedented 11-year bull market.

What it may mean for you: If you’re retired (or close) and start withdrawing funds the same year a bear market arrives, any losses would lower your portfolio value, leaving less money for retirement. It can be hard to play catch-up as you’re winding down your working years. Read tips to keep in mind when you’re an investor and near retirement.

Depending on your risk tolerance (PDF) and how long it will be before you tap your retirement funds, you may want to stay the course. Market swings can be buying opportunities. To learn more, read “Market volatility: How staying invested may help you in the long run.”

Hello, bear.

We said hello to a bear market in March 2020 due to many factors, including the spread of the COVID-19 pandemic. The Dow Jones Industrial Average (DJIA) fell from an all-time high of nearly 30,000 to under 19,000 in a few short weeks. Since then, we’ve had a rally. Time will tell if this bear market rally3 will be longer-term or whether we have a new bull market. You’ll still see day-to-day market swings up and down when we’re in bull or bear territory. That’s a normal part of the market.

Watch: Bob Baur, our chief global economist, offers a quick explanation of market volatility.

Read: “Can you be friends with a bear (market)? 5 investment options to consider.”

Focus on your long-term plan.

Market trends are continually changing, so it’s important to stay consistent with your investment strategy. Focus on your long-term goals and a financial plan to help get you there.

Working with a financial professional can help you keep emotions in check, whether the market is a bull or a bear.

Next steps

1 Bloomberg: S&P 500 Index, bottom in March 2009 (666.79), top in February 2020 (3,393.52).

Investopedia: A brief history of U.S. bear markets, March 2020.

3 As of August 20, 2020.

The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment.

The S&P 500 Index is an unmanaged index, which is widely regarded as the standard for measuring the U.S. stock market performance. It represents the 500 most widely held publicly traded companies.

It is not possible to invest directly in an index.

Investing involves risk, including possible loss of principal. Past performance does not guarantee future results.

Asset allocation and diversification do not ensure a profit or protect against loss.

Equity investment options involve greater risk, including heightened volatility, than fixed-income options.

Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline.

The subject matter in this communication is educational and is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC. Principal Life and Principal Securities are members of Principal Financial Group®, Des Moines, IA 50392. Principal Global Investors leads global asset management and is a member of the Principal Financial Group®.