🎯 In 30 seconds: A bull market is a long rise in stock prices; a bear market is a fall of 20% or more from a peak. A correction is a drop of 10% to 20%. A crash is a sudden, steep fall over days. The US market has had many bear markets, some as deep as 50% or more, and it has eventually recovered from each one so far, but recovery has taken anywhere from months to 25 years. Knowing this history helps you size your risk and keep your head when it happens.
The words, defined
| Term | Usual definition | Plain meaning |
|---|---|---|
| Bull market | A rise of 20% or more in a broad index, usually over at least two months | Prices trending up, mood optimistic |
| Bear market | A fall of 20% or more from a peak, usually over at least two months | Prices trending down, mood pessimistic |
| Correction | A fall of 10% to 20% from a peak | A meaningful dip inside a longer uptrend |
| Crash | No official number; a very large fall in a few days | Panic selling, record one-day drops |
| Recovery | The index gets back to its previous peak | Losses fully made back |
These are conventions, not laws. A 19% fall is not technically a bear market, but it feels the same. Different sources also measure from closing prices or intraday prices, so you will see slightly different numbers for the same episode.
The names are commonly explained by how the animals attack: a bull thrusts its horns up, a bear swipes its paws down.
The big declines, 1929 to 2022
Figures are for price only (no dividends). The 1929 row uses the Dow; the others use the S&P 500. "Back to old high" means the first close above the previous peak.
| Episode | Peak | Bottom | Fall | Back to old high | Peak to recovery |
|---|---|---|---|---|---|
| 1929 to 1932, Great Crash (Dow) | Sep 3, 1929 | Jul 8, 1932 | −89% | Nov 23, 1954 | about 25 years |
| 1973 to 1974 | Jan 11, 1973 | Oct 3, 1974 | −48.2% | Jul 17, 1980 | about 7.5 years |
| 1987, Black Monday | Aug 25, 1987 | Dec 4, 1987 | −33.5% | Jul 26, 1989 | about 2 years |
| 2000 to 2002, dot-com bust | Mar 24, 2000 | Oct 9, 2002 | −49.1% | May 30, 2007 | about 7 years |
| 2007 to 2009, financial crisis | Oct 9, 2007 | Mar 9, 2009 | −56.8% | Mar 28, 2013 | about 5.5 years |
| 2020, pandemic | Feb 19, 2020 | Mar 23, 2020 | −33.9% | Aug 18, 2020 | about 6 months |
| 2022, inflation and rate hikes | Jan 3, 2022 | Oct 12, 2022 | −25.4% | Jan 19, 2024 | about 2 years |
What happened in each
1929 to 1932. After a speculative boom with heavy borrowing, the market crashed in October 1929 and kept falling for almost three years as the economy sank into the Great Depression. The Dow lost about 89% and did not regain its 1929 high until November 1954.
1973 to 1974. High inflation, an oil price shock and a recession. Stocks fell almost by half, and inflation kept eating returns for years after.
1987. On Monday, October 19, 1987, the Dow fell 508 points, or 22.6%, still the largest one-day percentage drop in its history. There was no recession, and markets passed their pre-crash highs within two years.
2000 to 2002. The dot-com bubble burst. Many internet companies with no profits went to zero. The S&P 500 fell 49%; the tech-heavy Nasdaq Composite fell much more.
2007 to 2009. Bad mortgage lending, highly leveraged banks and a global financial crisis. The deepest fall in this table after 1929.
2020. The pandemic shut down much of the economy. The S&P 500 fell 34% in 33 days, one of the fastest bear markets on record, then recovered in about six months after huge government and Federal Reserve support.
2022. Inflation hit 40-year highs and the Federal Reserve raised interest rates quickly. Both stocks and bonds fell. The S&P 500 set a new record close on January 19, 2024.
The patterns worth remembering
- Bear markets are normal. Seven big ones in this table, plus smaller ones not shown. If you invest for decades, you will live through several.
- Depth and length vary wildly. Six months to recover in 2020; 25 years after 1929. Nobody knows in advance which kind it will be.
- Falls are faster than rises. Markets usually take longer to climb back than they took to fall.
- Recessions and bear markets often overlap but are not the same thing. 1987 had a crash with no recession. Stocks often bottom before the economy does.
- Individual stocks can do far worse than the index. An index recovers partly because losers get replaced by new winners. A single company that falls 90% may never come back.
The math of getting back
Losses and gains are not symmetric. After a fall, you need a bigger percentage gain to return to where you started:
| Fall 10%: $100 becomes $90; need $10 / $90 | +11.1% |
| Fall 25%: $100 becomes $75; need $25 / $75 | +33.3% |
| Fall 50%: $100 becomes $50; need $50 / $50 | +100% |
| Fall 89%: $100 becomes $11; need $89 / $11 | +809% |
The formula: gain needed = fall / (1 − fall). This is why traders obsess over limiting losses, covered in Risk comes first.
What a bear market feels like
On a chart, a bear market is a line going down. Living through one is different.
- The news is bad every day, and experts on TV predict it will get worse.
- Prices swing much more. Days of 3% or more, up and down, become common.
- Sharp rallies, sometimes 10% or more, happen in the middle of the decline, then fail. These are called bear market rallies, and they trap people on both sides.
- Your account loses money you had already counted as yours. Selling everything starts to feel like the only way to make the pain stop.
The bottom is only obvious afterwards. In real time, it usually looks like the worst moment, not the best one.
What this means for a trader
- Strategies that work in bull markets, such as buying breakouts and dips, often fail in bear markets. Check what kind of market you are in before trading. See Trends and Moving averages.
- Volatility rises in bear markets, so the same position size carries more risk. Smaller size is a sensible default.
- Leverage is what turns a bear market from painful into fatal. A 50% fall wipes out an account that was 2-to-1 leveraged. See Margin.
- Long-term investors who kept buying a broad index through these declines eventually recovered. Traders who were forced to sell at the bottom did not get that chance.
Try it
Run a simple test in the backtester: buy and hold a broad US index fund from the start of 2007 through 2013, and note the biggest drop and how long it took to recover. Then ask yourself honestly whether you would have held through it. Use your answer to decide how much of your money belongs in long-term investments versus trading.
- What is the usual definition of a bear market, and of a correction? Answer: A bear market is a fall of 20% or more from a peak, usually over at least two months. A correction is a fall of 10% to 20% from a peak.
- After the 1929 crash, how long did the Dow take to get back to its old high? Answer: About 25 years. It fell about 89% and did not regain its 1929 high until November 1954.
- Your $100 falls 25% to $75. What gain do you need to get back to $100? Answer: 33.3% ($25 / $75). The formula is: gain needed = fall / (1 - fall).
- What does a 50% fall do to an account that was 2-to-1 leveraged? Answer: It wipes the account out.
Sources
- Investor.gov (SEC): Bear market
- Investor.gov (SEC): Bull market
- Federal Reserve History: Stock Market Crash of 1929
- Federal Reserve History: Stock Market Crash of 1987
- Yardeni Research: S&P 500 bull and bear market tables (October 2022)
- Reuters via Investing.com: S&P 500 confirms bull market with record close (January 19, 2024)