Bull vs bear markets: what is the difference?

What do bull and bear markets mean?

The SEC's Investor.gov glossary describes a bull market as a time when stock prices are rising and sentiment is optimistic, and a bear market as a time when prices are falling and sentiment is pessimistic. To make the labels measurable, it adds a rule of thumb: generally a broad market index moving 20% or more, up or down, over at least two months.

FINRA's glossary of stressed-market terms uses the same 20% threshold for a bear market and adds the correction: a reversal of about 10% before the previous trend picks up again. These are conventions, not official declarations — no agency announces that a bear market has begun.

How do you measure whether a market is in bear territory?

Measurements run from a peak (the highest closing level before the fall) to a trough (the lowest level after it). The labels are always backward-looking.

1. Find the most recent peak of a broad index.

2. Measure the decline from that peak: (current level − peak) ÷ peak.

3. Apply the threshold: about −10% is a correction; −20% or worse is bear territory.

4. Measure from the trough for the next bull run: a 20% rise from the low.

Why does a 20% loss need a 25% gain to recover?

Percentage losses and gains work on different bases. A loss shrinks the amount you have; the recovery has to grow that smaller amount back. The deeper the fall, the steeper the climb.

The ECB's Fabio Panetta noted in December 2022 that bitcoin's price had fallen by more than 70% from its peak. By the table, a fall of exactly 70% needs a rise of about 233% just to break even. That asymmetry is why deep drawdowns matter so much for volatile assets — the subject of what is volatility.

Is a bear market the same as a recession?

No. A bear market is about asset prices; a recession is about the economy. In the US, the National Bureau of Economic Research dates recessions and defines one as a significant decline in economic activity spread across the economy and lasting more than a few months. Its committee weighs employment, income, spending and production — not stock prices — and it does not use the popular "two quarters of falling GDP" rule.

The two can overlap: in early 2020, as the COVID-19 shock hit the economy, the Federal Reserve reported that equity prices plunged. Because the two measure different things, one does not imply the other. Central bank interest rates influence both asset prices and the wider economy; see how interest rates affect markets.

How do bull and bear markets look in crypto?

The 20% rule was designed for broad stock indexes. Crypto-assets swing much further: the ECB found their historical volatility dwarfs that of diversified stock and bond markets. A 20% move in a single crypto-asset is therefore a much weaker signal than the same move in a broad stock index.

The 2021–22 cycle shows the scale. The ECB put total crypto-asset market capitalization above €2.5 trillion in late 2021. A year later, Panetta said it had shrunk to less than €1 trillion — a fall of over 60%. The collapse of TerraUSD in May 2022 was one of the shocks in that period; read what happened to TerraUSD. The ECB also found that crypto and stock returns moved more closely together during sell-offs in March 2020, December 2021 and May 2022.

What mistakes do people make in bull and bear markets?

• Treating the label as a forecast. Calling a market "bearish" describes the past; it says nothing reliable about tomorrow.
• Panic selling. FINRA lists selling out of fear, without analysis, as a hallmark of stressed markets. Decide on your plan before prices move.
• Mistaking a bounce for a recovery. FINRA's "dead cat bounce" is a temporary rise after a steep fall.
• Forgetting the recovery math. A 50% loss needs a 100% gain to recover.
• Applying stock rules to crypto. A 20% move in a token is far less unusual than in a broad stock index.