Bull vs. Bear market: The basics explained

If you’re investing in the stock market, it can pay to understand the difference between bull and bear markets. These two terms describe the market’s mood and often shape how investors think, react and uncover opportunities.

“Bull” and “bear” markets aren’t just Wall Street mascots. These terms describe the overall direction of stock prices over time:

• A bull market occurs when stock prices rise, and investor optimism is high. It’s typically defined as a 20% or more gain in a broad market index over at least two months.¹
• A bear market occurs when stock prices fall and investor pessimism dominates. This usually means prices have dropped 20% or more and stayed low for at least two months.²

Looking back at major bear markets helps put today’s downturns into perspective. Here’s how a $100 investment would have fared during three of the most severe market crashes in the past 150 years:³

• World War I and the 1918 flu pandemic (1911-1918): After a peak in 1911, markets slid due to conglomerate breakups and plummeted further when World War I began in 1914. That $100 dropped to $49.04 and didn’t recover until after the 1918 influenza pandemic.
• The 1929 stock market crash and Great Depression (1929-1939): Fuelled by overconfidence, heavy speculation, many people buying stock with borrowed funds and a very inflated market, the stock market crashed in 1929. The result was a brutal 79% drop — the worst in the past 150 years. By 1932, when the path to recovery began, a $100 investment shrank to just $21.
• The Lost Decade — dot-com bust and global financial crisis (2000–2012): After the dot-com bubble burst, a $100 investment sank to $52.76. Just as it neared recovery, the 2008 financial crisis hit, dragging it down to $46. In total, the market declined 54% and didn’t fully bounce back for over a decade.

But just as markets tumble, they also rise — and often come back stronger. Here are two bull markets that followed major downturns, showing the reward of staying the course:

• Peacetime boom (1949–1956): After World War II, the U.S. economy surged while Europe was rebuilding, sparking one of the most impressive bull markets in history. From 1949 to 1956, the S&P 500 soared 267%, meaning a $100 investment in 1949 would have grown to about $367 by the time the rally ended in 1956. The bull run was cut short when the Federal Reserve raised interest rates to curb inflation, but the market rebounded in 1957.⁴
• Before Black Monday (August 1982 to August 1987): A strong economy, falling interest rates, and corporate mergers fuelled a powerful bull market, driving the S&P 500 up 229%. A $100 investment in 1982 would have grown to about $329 by the time the rally ended. The party ended on October 19, 1987, which is known as “Black Monday” — the worst one-day stock crash in history, with markets plunging over 20% in a single day. Despite the shock, the U.S. economy kept growing for nearly three more years.⁵

During this time, portfolios typically see negative or shrinking returns (ouch!). This may not feel good, but it also means stocks are generally cheaper.

Bear markets are a normal part of the market cycle, not a reason to panic. Still, many investors react emotionally, unloading stocks to avoid further losses. That panic selling can deepen the downturn. Whether triggered by a recession, global crisis or financial shock, bear markets often feed on fear, and reacting too quickly can make a tough market even worse.

Bear markets don’t just come out of nowhere. They're usually triggered by events that shake investor confidence and slow economic growth. Common causes include:

• Economic recessions: When the economy contracts, companies earn less, unemployment rises and consumers spend less — driving stock prices down.⁷
• High inflation: When prices rise too quickly, consumers and businesses feel the squeeze. That can reduce spending, shrink profit margins and rattle investor confidence.⁸
• Rising interest rates: When central banks (for example, the Bank of Canada) hike interest rates to fight inflation, borrowing becomes more expensive, which, in turn, can reduce business investment and consumer spending, slowing growth and dragging down the markets.⁹
• Geopolitical events: Wars, pandemics, trade tensions (Trump tariffs!) or political instability can trigger uncertainty and spark widespread market sell-offs.¹⁰
• Overvalued markets: Sometimes, stocks rise too fast and far, creating market bubbles that eventually burst when reality catches up.¹¹
• The causes may vary, but the result is often the same: falling prices, shaken confidence and investor pain. But like all market cycles, bear markets eventually pass.

A bear market can be a golden opportunity for long-term investors. When stock prices fall, you can typically buy more for less. Investing regularly during a downturn can help you build a larger portfolio at lower prices. Then, when the market rebounds, the value of those assets may balloon.

Even high-quality, blue-chip companies often see price drops during a market-wide decline. Investors may scoop up solid businesses at a fraction of their usual cost.

For example, after the market dropped 20% (in real terms) between December 2019 and March 2020, U.S. equities rebounded within four months — returning to pre-crash levels by July 2020 and climbing even higher afterward.¹²

So, how do you make the most of a bear market?

If you’ve got time on your side (10+ years):

• Stay consistent. Don’t try to time the bottom. Stick to your strategy.
• Know your risk tolerance. Avoid letting fear or “FOMO” derail your plan.
• Use dollar-cost averaging to invest steadily, no matter the market mood.
• Diversify across sectors, asset types and regions.
• Keep a cash cushion in an emergency fund.

If you're close to retirement or withdrawing:

• Prioritize risk management over aggressive growth.
• Hold more stable assets like bonds, GICs or cash.
• Consider GIC laddering to balance return and flexibility.

The goal? Stay invested with a strategy that matches your stage of life. Bear and bull markets pass — but discipline pays.

The term "bull market" comes from the upward movement of a bull's horns. In a bull market, there's a widespread increase in stock prices, and investors tend to be positive.

In short, bull markets can feel great if your portfolio grows — but buying in at the peak usually means paying top dollar for stocks.

Bull markets usually happen when the economy is doing well and investors feel confident.

Common causes include:

• Strong economic growth: Businesses are doing well, profits rise and people often have more money to spend and invest.¹⁹
• Low interest rates: Borrowing money is cheaper, so people and companies spend and invest more, helping the economy grow.²⁰
• High corporate profits: When companies report higher earnings, investors may get excited and buy more stocks, potentially pushing prices higher.²¹
• Innovation: A new product or advancement can trigger excitement and optimism, drawing investors into the market.²⁰
• Stable prices (or low inflation): When prices aren’t rising too fast, people may have more confidence to spend, save, and invest.²⁰

While causes differ, bull markets share a common theme: optimism fuels growth, encouraging more investors to enter the market and sustain upward momentum.

Bull markets can be powerful wealth-building periods, but investors can’t rely on timing. Here’s how to take advantage of a rising market without losing your head — or your strategy.

Bull markets are often driven by sectors experiencing strong growth, such as technology in the late 1990s (aka the dot-com boom).¹⁴ Investors who get in early may benefit from upward returns, but there are no guarantees. But remember: early investors may ride the wave, but if the boom bursts — as it did for the dot-com era in the early 2000s — gains can also vanish.

Bull markets can tempt investors to chase quick wins, but many experts claim the real power lies in buying quality investments and holding them.¹⁵ Short-term trading can be risky, unpredictable and often driven by hype — just look at the Gamestop frenzy in 2021. Whereas investors who take a buy-and-hold approach focus on building a diversified, risk-appropriate portfolio and staying invested for the long term.

Even bull markets have dips. Corrections are normal. Investors who stay calm during market pullbacks are often better positioned to react to dips without panic or impulse decisions.

Savvy investors often adjust their approach to match their goals and timelines. Those closer to retirement may use a bull market to lock in gains and reduce risk, investing in safer assets like bonds, GICs, or high-interest savings accounts.

Meanwhile, those with a longer timeline often continue investing steadily during bull markets, seeing them as opportunities to grow their portfolios through higher-risk assets like stocks or aggressive mutual funds. In contrast, those closer to retirement may also stay invested — but tend to favour more conservative options, such as bond-focused mutual funds, GICs or high-interest savings accounts, aligning with a lower-risk appetite.

Bull markets don’t last forever—the dot-com boom in the late 1990s ended with a sharp downturn, reminding investors that no sector is immune to market shifts. Savvy investors recognize this reality, often staying consistent rather than trying to predict and capitalize on market highs and lows.

Markets rise, markets fall — but your investment strategy shouldn’t swing wildly with them. Here’s how to navigate both conditions like a boss.

Trying to predict when to jump in or out of the market is a losing game. A 2013 study even found that professional forecasters were correct about the market’s direction only 48% of the time. Which pretty much is a guessing game.

Market timing may lead to buying high and selling low, and research shows that missing just a few strong market days can make a noticeable difference in long-term performance.¹⁶ That’s why staying in the game matters.

Bull or bear, emotional decisions — like panic-selling or chasing hot stocks — often backfire. One study found that buy-and-hold investors consistently outperformed those who sold during market volatility. As billionaire investor Warren Buffett says, “The money is made ... by owning good companies for long periods of time.”

Your portfolio should reflect how much risk you can take. If a downturn makes you want to sell everything and hoard cash like it’s 1929, it might be time to reassess your risk level.

On the other hand, if you're far from your financial goals and can stomach market volatility, you may need more growth potential. Know your comfort zone and adjust your asset allocation accordingly.

Spread your investments across sectors, asset classes and regions. Diversification won’t eliminate risk, but it can smooth the turbulent ride and help you stay invested.

Markets are emotional, but you shouldn’t be. Setting up automatic, regular investments can keep you on track to reach your financial goals and avoid panic decisions.

Bear markets can offer long-term value, but only if you’ve got time on your side. Depending on your life stage, your portfolio needs may change. A qualified expert can help guide you and reassess your portfolio. Remember, a balanced mix of growth and low-risk assets can help weather the storm.

Bull and bear markets aren’t always clearly defined. Transitions can be gradual, and different sectors can move in opposite directions. For example, while the overall market might be in decline, a sector like technology could be thriving.

That’s why it’s important to focus on building a diversified portfolio aligned with your goals and risk tolerance, rather than trying to time the market or chase hot stocks or sectors.

Staying diversified helps you manage risk across different market cycles. And when things get bumpy, don’t go it alone. A Scotiabank advisor can help you create a strategy that fits your time horizon, risk comfort level, and long-term financial goals.

Understanding the basics of bear and bull markets can help you feel more informed and confident in your investment decisions, especially during times of market volatility. And don't forget that if you need guidance and reassurance in your strategy, you can always lean on a knowledgeable portfolio manager to help you reach your long-term investment goals despite what the market is doing today. After all, as the saying goes, the most important factor isn't timing the market — it’s time in the market.