Bull vs Bear Market: What Investors Need to Know

Bull or bear markets can affect how your portfolio performs in the short term

By Rachel Warren – Updated May 18, 2026 at 2:12 PM EST | Fact-checked by Frank Bass

Key Points

Bull markets signal rising stock prices; bear markets indicate declines of 20% or more.
Bear markets typically offer buying opportunities, enduring shorter than bull markets.
Long-term investment shouldn't vary with market conditions but focus on solid fundamentals.

The term "bull vs. bear market" is spouted by almost every financial media outlet, but what does it actually mean? A bull market signals an expanding economy and rising stock prices. Conversely, a bear market marks a stock decline of 20% or more from recent peaks, typically during an economic contraction. Both cycles can fundamentally reshape your portfolio and long-term investment strategy.

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A graphic comparing a bull vs. bear market, with a bull market indicating optimism and a bear market indicating pessimism. — Image source: The Motley Fool.

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generate_fund_chart — ^SPX data by YCharts.

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The historical trajectory of the S&P 500 highlights the structural resilience of the U.S. stock market. While the index's origins trace back to a 233-company tracker launched in 1923, it officially expanded to its modern 500-company threshold in 1957.

The U.S. stock market maintains a perfect track record of recovery, as there has not been a single historical bear market from which stocks did not eventually rebound into a new expansion. These subsequent bull markets vastly overshadow the downturns that precede them, yielding an impressive average cumulative return of roughly 177% and frequently driving multi-year gains well above 100%. The average bull market sustains its upward trajectory for 965 days.

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Since its expansion to a 500-company index, the S&P 500 has navigated roughly a dozen distinct bear markets, including major pullbacks in 1956, 1961, 1966, 1968, 1973, 1980, 1987, 1990, 2000, 2007, 2020, and 2022. While asset values diminished by varying degrees during these downturns, historical data show that these market contractions are temporary, lasting anywhere from three to 36 months, with a median duration of 17 months.

Because bear markets occur on average every several years, encountering these periodic downturns is an inevitable part of the investment lifecycle. The chart below illustrates the performance of the three major indexes from the start of the bear market in early 2022 to mid-2026.

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generate_fund_chart (1) — Market data by YCharts.

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Stock market performance

Stock prices are rising in a bull market and declining in a bear market. In a bullish market, the stock market consistently gains value, even with brief corrections. In bearish conditions, the stock market is losing value or holding steady at depressed prices.

Change in GDP

Rising GDP signals a bull market, while falling GDP signals a bear market. GDP increases when companies' revenues rise and employee pay rises, enabling higher consumer spending. GDP decreases when companies' sales are sluggish and wages are stagnant or declining.

Bear markets are closely linked with economic recessions and depressions. Recessions are formally declared when GDP decreases for two consecutive quarters, while depressions occur when GDP decreases by 10% or more, and the downturn lasts for at least two years.

Unemployment rate changes

A declining unemployment rate is consistent with a bull market, while a rising unemployment rate is consistent with a bear market. During bull markets, businesses expand and hire, but they may be forced to reduce headcount during bear markets.

A rising unemployment rate tends to prolong a bear market, as fewer people earn wages, reducing revenue for many companies. In turn, more people are selling shares or not buying into companies.

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Rate of inflation

Price inflation may be a problem when the economy is booming, although inflation during a bear market can still occur. High demand for products and services in bull markets can drive prices higher, while shrinking demand in bear markets can trigger deflation.

Prevailing interest rates

Low interest rates typically accompany bull markets, while high interest rates are associated with bear markets. Low interest rates make it more affordable for businesses to borrow and grow, while high interest rates tend to slow companies' expansions and force new companies to slow down or stop.

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