Bull market, bear market, correction: what the words mean
Bull, bear, correction and pullback are the market's most used labels. Here is what each one means and the rough thresholds behind them.
Market news is full of animal words and labels. A "bull market", a "bear market", a "correction". They sound technical, but they are mostly shorthand for how far prices have risen or fallen.
Bull market
A bull market is a long period when stock prices are rising. It is often defined as a rise of 20% or more from a recent low.
A common explanation for the name is that a bull attacks by thrusting its horns upward.
Bull markets often last for years. Prices do not rise in a straight line during them. There are many down days, and even down months, along the way.
Bear market
A bear market is the opposite. It is commonly defined as a fall of 20% or more from a recent high.
The usual explanation is that a bear attacks by swiping its paws downward.
Bear markets often come with bad news about the economy, such as a recession, but not always. They are usually shorter than bull markets, though they can be painful while they last.
Correction
A correction is commonly defined as a fall of 10% or more from a recent high, but less than 20%.
Corrections are a normal part of investing. They happen fairly often, even during long bull markets. Many end without turning into a bear market.
Pullback
A pullback is a smaller dip, usually under 10%. The word is used loosely, and there is no firm definition.
How the thresholds are measured
These labels usually refer to a broad index, such as the S&P 500 in the US or the S&P/TSX Composite in Canada.
The fall is measured from the highest closing level to the lowest. Here is an example with round numbers. If an index peaks at 1,000 and closes at 900, it is down 10% and in a correction. At 800, it is down 20% and in a bear market.
The same words are also used for single stocks, sectors and other markets, such as oil or gold.
Limits of the labels
- The 10% and 20% lines are conventions, not laws. A fall of 19% is not very different from a fall of 20%.
- You can only be sure a bear market has ended after the fact, once prices have recovered for some time.
- The labels describe what has happened. They do not predict what comes next.
The short version
- A bull market is a long rise in prices, often defined as 20% or more from a low.
- A correction is commonly defined as a fall of 10% or more from a recent high.
- A bear market is commonly defined as a fall of 20% or more from a recent high.
- The labels describe the past, not the future.
This is general information, not investment advice.
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