Bull and Bear Markets | How Do Stocks Work?

A bear market is commonly defined as a decline of 20% or more in a broad stock index from its most recent high, and a bull market as a rise of 20% or more from a low. A correction is a smaller decline, usually defined as 10% to 20%.

In short: “bull” and “bear” are labels for the direction and size of big market moves, measured from peak to trough or trough to peak, usually on closing prices of an index like the S&P 500 or the S&P/TSX Composite. There is no official body that declares them. The 20% line is a convention, and you only know a bear market has ended after the market has risen well off its low. History shows bear markets of very different depths and recovery times, from months to decades.

The definitions, and their limits

Bear market: a fall of at least 20% from a closing high.
Correction: a fall of at least 10% but less than 20%.
Bull market: a rise of at least 20% from a closing low. Many analysts also date a bull market from the low only once the index has made a new record high, which confirms the previous bear is over.

These are conventions used by the financial press and market historians, not rules from a regulator or exchange. They describe the past. Nothing about crossing -20% predicts what happens next. A market can fall 19.9%, recover, and never “officially” be a bear; it can also fall 20%, bounce, then fall further.

The definitions apply to an index. Individual stocks can be in deep bear markets of their own while the index is near a record, and vice versa. The index mechanics are covered in what is a stock index.

Every S&P 500 bear market since 1929, in brief

The table below uses S&P 500 closing price levels (dividends excluded) as compiled by Yardeni Research from S&P data. “Recovery” is the time from the old peak until the index closed at a new record.

Peak	Trough	Decline	Peak to trough	Back to a new record
Sep 7, 1929	Jun 1, 1932	-86.2%	about 2 years 9 months	Sep 22, 1954 (about 25 years after the peak)
Jan 11, 1973	Oct 3, 1974	-48.2%	630 days	Jul 17, 1980 (about 7.5 years)
Aug 25, 1987	Dec 4, 1987	-33.5%	101 days	Jul 26, 1989 (about 23 months)
Mar 24, 2000	Oct 9, 2002	-49.1%	929 days	May 30, 2007 (about 7 years)
Oct 9, 2007	Mar 9, 2009	-56.8%	517 days	Mar 28, 2013 (about 5.5 years)
Feb 19, 2020	Mar 23, 2020	-33.9%	33 days	Aug 18, 2020 (about 6 months)
Jan 3, 2022	Oct 12, 2022	-25.4%	282 days	Jan 19, 2024 (about 2 years)

The 1929 line combines what Yardeni records as two separate bear markets (a 44.7% fall in late 1929 and an 83.0% fall from April 1930 to June 1932) with a brief rally between. The same tables list other bear markets in the 1930s, 1940s, 1960s, 1970, and 1980-82 that are not shown here.

A few points stand out:

Depth and length vary enormously. The 2020 bear market was the shortest in the table, 33 days from peak to trough, and it recovered within six months. The 2000-2002 decline took two and a half years to hit bottom and seven years to recover on a price basis.
Recovery is slower on price than on total return. These figures ignore dividends. Investors who reinvested dividends got back to even sooner than the price index suggests.
Specific stocks and sectors can take much longer. The Nasdaq Composite closed at 5,048.62 on March 10, 2000, and didn’t close above that level again until April 2015, about 15 years later.

Near misses

Not every frightening drop crosses the line. In 2025, the S&P 500 closed at 6,144.15 on February 19 and fell to 4,982.77 on April 8, a decline of 18.9% amid the tariff announcements that April. It then recovered to a new record close on June 27, 2025. By the 20% convention that was a correction, not a bear market, though it felt like one to many investors.

The 1987 crash

Bear markets don’t always unfold slowly. On October 19, 1987, the Dow Jones Industrial Average fell 22.6% in one day, still its largest one-day percentage drop. More on that and other episodes is in stock market crashes in history.

Canada’s bear markets

The S&P/TSX Composite has had its own episodes, often driven by its heavy weighting in banks, energy, and materials:

2008-2009: from a record of 15,073.13 on June 18, 2008 (when oil prices were near their peak) to 7,566.9 on March 9, 2009, according to TMX and BMO data. That is a decline of about 49.8%: 7,566.9 ÷ 15,073.13 = 0.502.
2020: TMX reported a drop from a record 17,944.1 on February 20, 2020 to 11,228.5 on March 23, 2020, about 37.4%: 11,228.5 ÷ 17,944.1 = 0.626. The Bank of Canada described it as a 37% drop, measured from February 19.

The arithmetic of losses

Losses and gains aren’t symmetrical. After a decline, you need a bigger percentage gain to get back to where you started:

Gain needed to recover = 1 ÷ (1 - loss) - 1

Decline	Gain needed to get back to even
-10%	+11.1%
-20%	+25.0%
-25.4% (2022)	+34.1%
-33.9% (2020)	+51.3%
-49.1% (2000-2002)	+96.6%
-56.8% (2007-2009)	+131.4%
-86.2% (1929-1932)	+625%

For the 2007-2009 case: 1,565.15 ÷ 676.53 = 2.314, so the index needed to rise about 131% from its low just to get back to its 2007 high. That is why deep bear markets take years to recover even when the rebound is strong.

Bull markets

Bull markets have historically lasted longer than bear markets. According to Yardeni’s tables, the S&P 500 rose 582% from December 1987 to March 2000, and 400% from March 2009 to February 2020. Over long periods the index has risen far more than it has fallen, largely because company earnings have grown. Across 1928 to 2025, data compiled by NYU’s Aswath Damodaran show the S&P 500 had a negative total return in 26 of 98 calendar years, so down years have been common but outnumbered by up years.

That history is not a guarantee. Different countries and periods have had much longer stretches of poor returns, and past patterns do not determine future ones.

What tends to cause bear markets

There is no single trigger, but the episodes in the table fall into a few recognizable groups:

Recessions and banking crises. 1929-1932 combined a market collapse with bank failures and the Great Depression. 2007-2009 began with US housing and turned into a global banking crisis. These have tended to be the deepest and slowest to recover, because company earnings fell sharply as well.
Inflation and rising interest rates. 1973-1974 came with an oil shock and high inflation. 2022 came as inflation reached its highest level in about four decades and both the Federal Reserve and the Bank of Canada raised rates quickly. Higher rates lower the present value of future profits, as covered in stocks vs bonds.
Bursting valuations. 2000-2002 followed the dot-com boom, when many technology stocks were priced for growth that never arrived. The US recession of 2001 was mild; much of the market’s fall came from prices coming back down to earth.
Sudden shocks. In 2020, the COVID-19 pandemic shut down large parts of the economy within weeks. Prices fell extremely fast and, with heavy central bank and government support, recovered almost as fast.
Market mechanics. The 1987 crash happened without a recession. Official reviews afterwards pointed to market structure problems, including heavy selling by portfolio insurance strategies into a falling market.

Recognizing the category after the fact is easy. Predicting the next bear market, its cause, its depth, or its timing has a poor track record, including among professionals.

What can go wrong

Trying to time it. Bear markets are only identifiable after the fact, and some of the strongest days come shortly after the worst ones. Selling after a big fall and waiting for “clarity” can mean missing the recovery. See investor behavior mistakes.
Sequence risk. A bear market early in retirement, when withdrawals begin, can do lasting damage, because shares sold at low prices can’t recover.
Leverage. Borrowing to invest turns a bear market into margin calls and forced selling at the worst moment.
Assuming every recovery is quick. 2020 recovered in months. 1929 took 25 years on a price basis, and the Nasdaq took 15 after 2000.
Single-stock risk. An index recovers because new winners replace old losers. Individual companies may never recover. The full list of risks is in stock market risks explained honestly.

The takeaway

Bull and bear markets are informal labels: a 20% rise from a low or a 20% fall from a high in a broad index. Since 1929 the S&P 500 has been through bear markets ranging from a 25% decline over nine months to an 86% decline that took a quarter-century to recover on a price basis, and Canadian stocks fell about half in 2008-2009. The pattern has been that bull markets last longer, but the depth and duration of the next bear are unknowable in advance, which is why time horizon, diversification, and avoiding forced selling matter more than predictions.