What Bull and Bear Markets Are — The -20% Threshold and Historical Cases
You often hear 'a bull market has come' or 'it's a bear market,' right? But exactly how many percent does it have to fall to be a bear market? Once you know the criteria and history, you'll be less shaken even in a crash.
The Criteria for Bull and Bear Markets: The -20% Line
A bear market usually refers to 'a state of being down 20% or more from the peak.' For reference, a 5% decline is a pullback, a 10% decline is a correction, and a decline of 20% or more is classified as a bear market.
A bull market is the opposite—a phase of continuous rising from a bottom. Often, rebounding 20% or more from the bottom is seen as entering a bull market.
The important thing is that this 20% is not an absolute law of nature but a 'conventional criterion' widely used in the market. The detailed criteria can differ slightly by index or by source. But it's enough to understand it as 'a rough line separating big declines from big rises.'
-20% is a conventional criterion. Individual stocks or assets commonly see far larger drawdowns (-50%, -80%), so it's best not to confuse the index-level criterion with individual-asset criteria.
How Long Bear Markets Last and How They Recovered
Historically, for the S&P 500, the time it took for a bear market to fall from peak to trough was roughly around a year (about 9 to 14 months, depending on the source). Recovering the previous peak after hitting the trough often took longer than that (on average roughly 1 to 2 years, and far longer in some cases).
A notable point is that 'all' of the roughly 20 bear markets the S&P 500 has experienced since 1928 were eventually followed by a bull market. Of course, that recovery took months in some cases and years in others.
Conversely, bull markets have generally been much longer than bear markets. For example, the bull market that ran from March 2009 to February 2020 lasted about 11 years, one of the longest advances in history. That said, the 'average bull market length' is tallied at roughly 3 to 4 years, depending on the source.
That the trough of a bear market takes roughly around a year, and recovery takes longer, is an 'average tendency.' Individual crises (dot-com, financial crisis, etc.) took 4 to 7 years or more to recover in some cases, so a specific event can last much longer.
Frequently Asked Questions
Q. When a bear market comes, do I have to sell no matter what?
Given that historically every bear market eventually recovered, selling in fear near the bottom has been the most common mistake. However, this is a story about a 'diversified index'; individual troubled stocks may never recover. This article is not recommending any particular action but introducing a historical pattern.
Q. What's the difference between a 'correction' and a 'bear market'?
Conventionally, a 10% decline from the peak is a 'correction,' and a decline of 20% or more is a 'bear market.' A correction is a temporary decline that often appears within an uptrend, while a bear market means a larger, more sustained downturn. That said, the dividing line is conventional, so it's hard to draw a clean cut.
📋 Results are based on historical data; past returns do not guarantee future returns.
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