For educational purposes only; not investment advice. Investing may result in loss.
Direct answer
A bull market is a sustained rise in stock prices accompanied by generally optimistic sentiment; a bear market is a sustained decline accompanied by generally pessimistic sentiment. Investor.gov describes each, in general, as a move of at least 20% in a broad market index over at least two months: up for a bull market and down for a bear market.
That 20% convention is a descriptive label, not a statute, accounting rule, guaranteed turning point, or trading signal. Any claim should name the index, currency, price or total-return series, closing or intraday observations, reference peak or trough, date range, and rounding method. Different choices can produce different start dates, end dates, and classifications.
What moves a market regime
At a high level, stock prices reflect expected future shareholder cash flows discounted by required returns. Prices can rise because expected cash flows improve, risk-free rates fall, required risk premiums fall, or some combination occurs. They can fall when those forces reverse. The label records the price path; it does not identify the cause.
Use several lenses rather than the headline alone:
- earnings and cash-flow expectations, revisions, margins, defaults, and balance-sheet capacity
- nominal and real interest rates, inflation expectations, yield-curve changes, and discount rates
- equity risk premiums, credit spreads, lending standards, market funding, volatility, and liquidity
- market breadth across advancing and declining securities, sectors, countries, capitalization tiers, and equal-weighted indexes
- index construction, constituent changes, concentration, float adjustment, and currency translation
- price return versus total return, including dividends and their reinvestment
- peak-to-trough drawdown, trough-to-peak recovery, duration, speed, and interim reversals
- the difference between an economy, a broad market, one index, one sector, and one security
A recession is not required for a bear market, and a bull market does not prove that the economy or every company is strong. Markets are forward-looking and can turn before reported economic data, earnings, or policy do. Credit, rates, earnings, and valuation can also send conflicting signals.
For two observations measured on the same basis:
percentage price change = (ending level - starting level) / starting level × 100%
Worked examples
Suppose a broad price index falls from 1,000 at a closing high to 800 over three months:
bear-market decline = (800 - 1,000) / 1,000 = -20%
Under the stated convention, that reaches the rough bear threshold. If the same index then rises 20% from 800, it reaches 960:
bull-market rise = (960 - 800) / 800 = 20%
It may meet the rough bull threshold while remaining 4% below the former high. Returning from 800 to 1,000 requires 25%, not 20%, because the gain applies to a smaller base:
required recovery = (1,000 - 800) / 800 = 25%
Now consider a target portfolio with $60 in stocks and $40 in bonds. If stocks fall 20% while bonds are unchanged, stocks become $48 and total portfolio value becomes $88:
new stock weight = $48 / $88 = 54.55%
Restoring a 60% stock target requires $52.80 in stocks, so a full rebalance would move $4.80 from bonds to stocks, ignoring taxes, fees, spreads, minimum trades, and any changed circumstances. This is a rule-based illustration, not a requirement to rebalance whenever an index receives a label.
Practical checklist
- State the exact index, ticker, currency, return type, data vendor, observation frequency, and start and end dates.
- Distinguish closing from intraday highs and lows and document treatment of holidays, stale prices, rounding, and later data corrections.
- Calculate the move from the same series and reference point; do not mix a price-index peak with a total-return trough.
- Separate a 20% gain from recovery to the prior high; percentage losses and gains are asymmetric.
- Examine breadth, equal-weight performance, sector leadership, new highs and lows, turnover, volatility, and liquidity.
- Decompose the move into earnings or cash-flow revisions, valuation multiples, rates, risk premiums, credit conditions, and currency.
- Compare the broad market with the investor’s actual holdings, including funds, bonds, cash, international assets, factors, leverage, and options.
- Review time horizon, near-term cash needs, emergency reserves, loss capacity, leverage, and forced-sale risk before changing exposure.
- Use a written allocation and rebalancing policy with thresholds or dates; include taxes, fees, spreads, restrictions, and account location.
- Avoid borrowing more, chasing recent winners, panic selling, or purchasing unsuitable products solely because of a regime label.
- Record what was knowable at the decision date; regime endpoints and economic data often become clear or are revised only afterward.
- Define review triggers for changes in goals, horizon, finances, valuation, fundamentals, or risk capacity rather than trying to predict a label’s exact reversal.
Common misconceptions
“Every 20% move has one official start and end date.” Conventions differ by index, series, observations, duration, reference point, and data provider. State the method instead of presenting false precision.
“A bull market means every stock rises; a bear market means every stock falls.” Index concentration and narrow leadership can hide very different results across securities, sectors, countries, and investor portfolios.
“Crossing the threshold reveals what happens next.” The label is based on a move that has already occurred. Markets can reverse, extend, or move sideways after crossing it.
“The label alone should determine the portfolio.” Allocation should follow goals, horizon, liquidity needs, diversification, valuation, loss capacity, taxes, and a documented plan, not a retrospective headline.
Related topics
Authoritative sources
- Bull Market — Investor.gov (2026-08-07)
- Bear Market — Investor.gov (2026-08-07)
- Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing — Investor.gov (2026-08-07)
- Asset Valuations — Federal Reserve (2026-08-07)