A bear market is a fall of 20% or more from a recent peak. A bull market is a rise of 20% or more from a recent trough. A correction is a fall of 10%.
Those are the definitions, and the useful thing to know about them is that no regulator wrote them, no statistician derived them, and nothing happens when one is crossed. They are conventions, and the 20% is round because people like round numbers.
That is not a reason to ignore them. It is a reason to understand exactly what they do and do not tell you, because a great deal of financial commentary treats a threshold as though it were a diagnosis.
Where the 20% came from
Nowhere in particular. There is no founding paper and no agreed origin. The most credible account is that it entered use through market journalism in the twentieth century as a convenient marker, and it stuck because everybody could remember it.
A market down 19.4% is not meaningfully healthier than one down 20.6%. Nothing about company earnings, unemployment or interest rates changes as the index crosses the line. The line's only real function is to tell you that a decline has been unusually large by historical standards, which is genuine information but not a signal to act on.
Treat it the way you would treat a weather warning threshold. Useful shorthand. Not a physical law.
Why nobody can agree on whether we are in one
Three ambiguities, and each has produced a real public disagreement.
Closing prices or intraday. Measure from the highest closing price to the lowest closing price and you get one answer. Measure using the highest and lowest points reached at any moment during a trading day and you get a deeper decline. In late 2018 the S&P 500 fell just under 20% from its September peak on a closing basis while breaching 20% intraday, which is why some outlets reported a bear market that December and others did not. Both were reporting accurately, from different rules.
Which index. The S&P 500, the Nasdaq Composite and the Dow routinely disagree, because they hold different things in different proportions. It is entirely normal for the Nasdaq to be in a bear market while the S&P 500 is merely in a correction. Anybody who says "the market" is in a bear market has chosen an index, and often not told you which.
Nominal or real. The published figures ignore inflation. In a high-inflation stretch, a market that is flat in nominal terms is losing purchasing power steadily, and a 20% nominal fall is a considerably worse real one. Almost nobody reports the real figure, and it is the one that describes what happened to your money.
Why you cannot spot the bottom while it is happening
A bear market is measured from a peak to a trough. You can identify the peak fairly quickly, because it is behind you. The trough is only identifiable once the market has recovered from it, which is to say afterwards.
So on any given day in a falling market, you know you are down some percentage from the high. You do not know whether you are near the bottom, halfway there, or at the start. That is not a failure of analysis. The information required does not exist yet.
The label is therefore confirmed at the moment it stops being useful. The declaration comes after most of the fall, and the recovery begins before anybody agrees it has.
How often bear markets happen
Since 1950 the S&P 500 has had roughly 38 corrections of 10% or more and around 14 bear markets of 20% or more.
A correction has arrived about every other year, a bear market roughly every five. Someone investing over a forty-year working life should expect somewhere around eight of them, which reframes the question from whether one will happen to what you will do each time.
The depths vary enormously and the recoveries vary more. The 2007 to 2009 decline took the S&P 500 down about 57%, the deepest of the post-war period, and the index did not reclaim its previous high until 2013. The 2020 fall was violent and brief, recovering within months. A shorter, sharper 2025 decline of more than 15% was back to its previous high in something like 89 trading days.
Declines caused by an external shock have generally recovered faster than declines caused by something breaking inside the financial system. A pandemic is a shock. A banking crisis is structural, and it takes years to repair.
Bull markets last far longer than bear markets
Bear markets are measured in months, occasionally a couple of years. Bull markets have run for five, ten, and in one case more than a decade. The rises are also cumulatively much larger than the falls, which is the only reason long-run equity returns are positive at all.
This is why the standard advice to stay invested is not optimism or platitude. It is arithmetic. Time spent out of the market is disproportionately likely to be time spent out of a rise, because rises occupy most of the calendar.
It also explains why missing a handful of days does so much damage. The best days cluster inside the worst periods, often within weeks of the bottom, at precisely the point when selling feels most justified. You cannot avoid the worst days and keep the best ones, because they arrive together.
What a bear market does and does not tell you about the economy
The two are related and they are not the same thing, and confusing them is the most common error in this area.
The stock market is forward looking. It prices what investors expect, so it tends to fall before a recession arrives and to recover before the recession ends, which is why the bottom so often occurs while the news is at its worst.
It also produces false alarms. Not every bear market has been followed by a recession. The 1987 crash was severe and no recession followed. The market can fall 20% because interest rate expectations changed, or because a crowded position unwound, with no implication whatsoever for the wider economy.
Which is the practical takeaway. A bear market tells you the price of shares has fallen a long way. It does not tell you that a recession is coming, and it certainly does not tell you when the fall will stop.
What to do about it
Nothing on this page argues for a prediction, because the definitions cannot support one.
Decide the allocation before the fall, not during it. The only meaningful question is whether you can hold your portfolio through a 30% decline without selling. If not, the portfolio is wrong now, while everything is calm, and a bear market is the worst possible moment to discover it.
Keep contributing. Regular contributions into a falling market buy more shares per dollar. That is the one genuinely reliable advantage an ordinary investor has over a professional, and it works only if you do not stop.
Keep enough cash that you are never a forced seller. Selling at the bottom is almost never a choice made freely. It is made by somebody who needed the money that month.
Ignore the label. Whether the fall is 19% or 21% changes nothing about what you should own or how long you should own it.
Where this fits with everything else
If your balance has already fallen and the question is what to do about it now, what to do when your 401(k) is losing money covers that directly.
For whether a downturn in markets says anything about the economy, and what the indicators that supposedly predict recessions have actually managed, see recession indicators and what they have really predicted.
And for the case that behaviour during these periods matters more than any analysis of them, The Psychology of Money makes the argument better than most.
Where to check the data yourself
Rather than relying on any commentator, including this one, the underlying series are public and free.
- S&P 500 index, from the Federal Reserve Bank of St. Louis. Daily closing levels, chartable over any period, downloadable, and shaded with recession periods so you can see how market falls have lined up with them.
- NBER business cycle expansions and contractions, the official dates for every US recession back to 1854.
Frequently asked questions
What is the difference between a correction and a bear market?
A correction is a fall of 10% or more from a recent peak. A bear market is a fall of 20% or more. Both are conventions rather than official definitions, and neither triggers anything.
How do you know when a bear market has ended?
Conventionally when the index rises 20% from its low, which can only be identified after the fact. There is no way to recognise the bottom at the time, because the bottom is defined by what happens afterwards.
How long do bear markets usually last?
Months rather than years in most cases, though the deepest have taken considerably longer to recover from. The 2007 to 2009 decline took until 2013 to reclaim its previous high; the 2020 fall recovered within months. Shocks recover faster than financial crises.
Does a bear market mean a recession is coming?
No. The two often coincide because markets price expectations ahead of the economy, but there have been bear markets with no recession, 1987 being the clearest example. A market fall is information about prices, not a forecast.
How many bear markets have there been?
Around 14 in the S&P 500 since 1950, alongside roughly 38 corrections of 10% or more. That works out at a bear market roughly every five years.
Should I sell in a bear market?
Selling converts a decline on paper into a realised loss and requires you to time the return correctly as well, which almost nobody does. The larger problem is that the strongest recovery days cluster near the bottom, so being out during the worst stretch usually means missing the best of the rebound too.
Which index defines the bear market?
Whichever one is being quoted, which is why they disagree. The S&P 500 is the usual reference for the US market, but the Nasdaq and the Dow hold different companies and cross the thresholds at different times.