Bull vs. bear markets: stock market declines can be swift; however, bull market increases have won out over time.

The terms “bull market” and “bear market” are commonly cited as descriptors of stock market behavior. Perhaps you have seen various bull and bear statues or images meant to symbolize the stock market. What do the terms mean, and from where did they originate?

In general, during a bull market, there are more buyers than sellers and the market trends higher. During a bear market, the opposite is true, and the market trends lower. A certain percentage change in price may be associated with either, such as a 20% decline signifying a bear market.

The exact origination of the terms is unknown. There are several theories dating back centuries; from animal trappers and traders, to depicting methods of attack for each animal (upwards vs downwards). One explanation dates back to the 17th century from the London Stock Exchange. At that time, there was a bulletin board where traders posted offers to buy and sell different stocks. When there were many people buying, there was a full bulletin; when few were buying, the bulletin was “bare” (bear).

No matter the origination, we know that markets go through periods of rising and falling prices, with the bull markets ultimately winning out. Since 1960, the U.S. stock market (S&P 500) has increased at an average annualized rate of 10.2% per year. According to Ned Davis Research, during this same time, there have been:

• 19 bear markets, averaging 25.5% cumulative decline and lasting on average 10.4 months

• 18 bull markets, averaging 77.1% cumulative gain and lasting on average 29.2 months

While the declines in bear markets can be steep they tend to be short-lived. History shows bull markets tend to be longer in duration and have brought substantial gains. There are important actions that can be taken in both bull and bear markets. From a portfolio management standpoint, we emphasize knowing how much of a portfolio is dedicated to longer-term growth. Based on history, there has been a rewarding bull market behind every bear.

Additional Notes:

• In 2020, we have experienced both a bear and bull market; the February-March S&P 500 decline of approximately 34% occurred just over 23 trading days, while the ensuing bull market gain of 47% occurred over 130 trading days

  • Since the February 2020 peak, the S&P 500 is down just over 2%

• U.S. stock markets were mostly higher on Friday; however, end the week negative, marking the fourth consecutive week of decline for broad stock market indices

• New homes sales increased more than expected in August; the 4.8% increase, which was the fourth consecutive gain, was the highest level of new home sales since 2006 (source: U.S. Census Bureau)

• A COVID-19 vaccine by Johnson & Johnson is now in late-stage trials, joining three other candidates; Novavax Inc. also announced it had initiated its first Phase 3 trial of its COVID-19 vaccine candidate in the U.K.

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