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Bullish vs. bearish: What’s the difference?
The main difference between bullish and bearish is an attitude or belief in relation to the stock market. A bullish person acts with a belief that prices will rise, whereas bearish investors act with the belief prices will fall. The terms bullish and bearish are often used to describe patterns and trends in major stock market indices.
It can be easy to confuse your financial market animals — both bulls and bears are large, strong and known for territorial behavior. But in a bull market, stock market values rise at least 20% from a recent low, whereas in a bear market, average stock values drop by at least 20% from a recent peak.
Investor responses to bull market vs. bear market cycles
All that said, most investors can’t predict exactly when a bull market will flip to a bear market and vice versa. So timing the market is never a good idea.
It’s common for individual investors to get spooked by bear market headlines and suffer from loss aversion bias, where losses loom larger than gains. However, over the long term the market usually does well.
Bull market growth has historically been longer and more sustained than bear market periods of decline.
Institutional investors, such as banks, companies and wealth management firms, typically know that bear markets are brief, worry less about the present and think more about the long term. That’s why most financial advisors would tell you to hold your investments through both the bear markets and the bull ones alike.
Here’s another way to think about it: The S&P 500 has grown more days than it has declined. March 2009 to early 2020 marked the longest bull market (131.4 months) and period of economic expansion in U.S. history, seeing increases of over 400%.
On the other hand, bear market periods of decline are a normal response to a number of economic and geopolitical factors — such as war, oil crises, global pandemics, market speculation, inflation and rising interest rates. The 1929 stock market crash ushered in the longest bear market at more than 32 months.
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Bear market vs. recession: What’s the difference?
Bear markets and recessions are often confused and conflated, since recessions can coincide with, precede or follow a bear market. It certainly doesn’t help that two of the most devastating U.S. recessions coincided with bear markets: the 1929 stock market crash and the 2009 subprime mortgage crisis. But recessions and bear markets aren’t always or necessarily related.
A bear market describes a decline in average stock prices like the S&P 500, whereas a recession describes a slowing of economic output in a country. Economic output is the total value of goods produced and services provided by a country and is also known as gross domestic product, or GDP.
When growth slows and an economy starts to shrink over two consecutive quarters, a recession occurs. In the U.S., the National Bureau of Economic Research tracks and reports when U.S. business cycles enter periods of growth or decline.
When investors feel optimistic, employment levels and production levels are more likely to be strong. During more pessimistic bearish times, companies may lay off workers, which can affect unemployment rates as well as the likelihood of an economic downturn. The spread of the coronavirus contributed to the most recent U.S. recession, which spanned two quarters from February to April 2020.
» Learn more: What is a recession?
Other stock market changes: Dips, corrections and crashes
Since 2020, stock price swings — or volatility — have marked the market and U.S. economy. COVID-19 caused the shortest bear market in 2020: 1.1 months. The market quickly recovered and made gains before dipping again in early March 2022. So what does that mean?
As with gravity, what goes up must come down in financial markets. In short: Growth cannot continue uninterrupted forever. Instead, markets cycle through periods of growth and decline.
There are many terms to describe stock market declines. A dip is a brief downturn after an upward trend. When a stock market falls at least 10% but less than 20%, a stock market correction occurs. When the market sharply and suddenly declines, it has crashed.
» Learn more: Stock market crashes: How to prepare and not panic