Investing in Bull and Bear Markets

Bulls and bears are words used to describe the stock market. Whether the market is a hard-charging bull moving forward or a hibernating bear affects investment decisions. Understanding the differences between bull and bear markets can help you make more informed decisions about your portfolio.

What Does a Bull or Bear Market Mean Anyway?

A bull market is one on the rise, with a sustained increase in stock prices. It usually occurs when the economy is strong and employment levels are high. Bulls can run for a while—the longest bull market on record lasted 10 years, from 2009–2019.

A bear market is one in a decline of 20% or more from recent highs. Some of the most memorable bear markets include the Great Depression, the dot-com bubble in 2000 and the financial crisis of 2007–2008.

Bull vs Bear Markets

How Do You Know Whether to Expect a Bull or Bear Market?

While every bull or bear market has some unique reasons behind its arrival, there are a few conditions that commonly can signal its approach.

Inflation Rates

Rapidly rising inflation rates make it more difficult to determine what corporate earnings or consumer buying power will be. And because markets hate unpredictability, that difficulty can cause volatility. To see how investment values hold up under different inflation rates, check out our inflation calculator.

Interest Rates

Interest rate increases can lead to bear markets. With higher borrowing costs, consumers and businesses may cut back on spending, putting less money into the economy and lowering corporate earnings and stock prices.

In contrast, interest rate drops can call out the bulls. Businesses and consumers are more likely to spend, boosting the economy, business growth, corporate earnings and stock prices.

Housing Price Swings

Because so much of people’s wealth is tied up in their homes (or goes to paying for a place to live), big fluctuations in average housing prices can spur a bull or bear market.

How to Invest in a Bear or Bull Market

Bear Market Investing Strategies to Consider

When the bears retreat into their caves, investors commonly experience loss aversion. They’re tempted to sell off their holdings rather than continue watching prices fall—but doing so may result in greater losses.

Selling when the market is low locks in losses—you no longer have the opportunity for those holdings to rebound. Also, fewer stocks in your portfolio leaves you with reduced ability to potentially recoup some losses when the market recovers.

Bull Market Investing Strategies to Consider

When the bulls are charging, it’s easy to get caught up in the excitement and keep buying an investment that’s peaked. Be alert for emotional biases that can kick in and influence your decisions. Take a step back to look at the larger economic trends and consider your natural human responses.

Steps That Can Help in Bull and Bear Markets

One step that makes sense in every market is building a solid, long-term financial plan. A “precommitment strategy” can help you keep emotions in check and stay focused on your long-term goals.

Another step is to look at your diversification, which can help mitigate losses—when one investment type isn't doing well, another may be in favor. This does not mean that a diversified portfolio never loses money. Rather, owning a variety of investments that don't react the same way to market events may help provide more consistent, less volatile returns over time.

Finally, remember that investing is a long-term strategy. Historically, the market has tended to be more bullish than bearish. Focus on your long-term goals rather than focusing on whether it’s a bull vs bear market, and you’ll be better prepared to ride out the ups and downs.