Every Bull Market Meets Its Bear

In the natural world, bulls attack upward with their horns, while bears attack downwardly with their claws – that's why when market prices are rising (and expected to rise) it's called a "bull," and when market prices are falling and expected to decline, it's called a "bear." That's more or less where the comparison stops, because while in nature, bulls and bears seldom come face to face, in the market, eventually, every bull meets its bear.

The S&P 500 entered a bear market on June 13, 2022 after dropping more than 20 per cent from its record closing high in January amid rising inflation, continued interest-rate hikes and recession fears. The last time global markets swung into bearish territory was March 11, 2020, when fears over the newly declared COVID-19 pandemic halted an 11-year bull – the longest in history. But what does this mean?

Just what is a bear market?

A bear market is defined by stock prices in an index falling by 20 per cent or more as compared to recent highs. Some examples from early March 2020: The S&P/TSX Composite Index (which represents approximately 70 per cent of the Toronto Stock Exchange's market capitalization), the S&P 500 (a key gauge of large-cap U.S. equity performance) and the Dow Jones Industrial Average (comprising 30 industry-leading blue-chip stocks) all fell more than 20 per cent from recent peaks. Notably, bear market territory is marked by the magnitude of a decline, not how long prices have been falling. Diminished investor confidence can lead to lower prices and market values for investments.

What does it mean to be “bearish"?

Lacking confidence about the foreseeable future, bearish investors' pessimistic outlook and short-term perspective may drive them to sell off holdings as they believe value will continue to diminish. Some bearish investors may also take a different approach by adopting strategies like short selling or buying puts*.

How long have bear markets lasted in the past?

Since 1926, the markets saw at least eight bear periods, according to MarketWatch. Bear markets have which varied significantly in length, though experts say they tend to be shorter in length than bull markets. The longest among them bear market started in 1946 after the Second World War, lasting more than three years. The shortest, in 1987, spanned three months.

Can there be up periods in a bear market?

Though the overall trend is downward during a bear market, periods of upward movement are possible. Called a Bear Market Rally, such an event can last days or even weeks.

This article was updated June 13, 2022.

For ideas and strategies during this period, check out the Investing Academy.

*Remember, there are risks with any investment. It's good to weigh the risks to understand what investing strategies are right for you.