Twenty percent. That’s the line Wall Street uses to separate a bull market from a bear market, and there’s nothing scientific about it.
It’s a convention, basically a round number that stuck, and financial TV treats it like a finish line for the S&P 500. Spend ten minutes with long-run stock market graphs, though, and you stop caring much about the labels. What you notice instead is how differently the good years and the bad years are built.
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The Twenty Percent Rule Is Shakier Than It Sounds
By that rule a nineteen point nine percent drop is just a “correction,” while twenty point one gets the scary name. Kind of silly when you say it out loud.
1990 is a nice example. From its July high to its October low, the S&P fell just shy of twenty percent at the close, and people still argue over whether it counts. 2011 was another near miss, a roughly nineteen percent slide around the US credit downgrade that August.
The more useful question is why prices fell in the first place. Good stock market graphs make it easy to check whether a decline came from shrinking profits or just shrinking enthusiasm, which tells you more than any threshold does.
Bulls Take Their Time
If long-term stock market graphs make one thing obvious, it’s that bull markets go on for a long time, usually longer than anybody expects while they’re in one.
The run that started in October 1990 lasted until March 2000, close to a decade, and the S&P gained roughly four hundred percent along the way. The next big one began at the March 2009 bottom and kept going until February 2020, the longest on record at about eleven years, with the index up around four hundred percent again.
I couldn’t tell you how many “this is the top” headlines ran during those eleven years. Hundreds, probably.
Neither run was smooth if you zoom in. The 2009 to 2020 run included a drop of nearly twenty percent in late 2018 that, once again, missed the bear label by a whisker. Plenty of people bailed in December, right before the index pushed to fresh highs the following spring.
Bears Hit Fast
Bear markets tend to be the opposite, shorter and a lot steeper.
October 19, 1987 is still the extreme case. The S&P lost about twenty percent in one trading day, Black Monday, wiping out months of gains.
Oddly enough, the index still ended 1987 a bit above where it began, so a chart of yearly closes barely shows the crash at all. Switch to daily bars and it’s a cliff.
2022 was slower but still sharp by bull-market standards. The S&P slid about twenty-five percent between early January and mid-October, and it didn’t set a new high until January 2024. Earnings, though, mostly held up that year. It was a valuation reset after a long stretch of cheap money, not a profit collapse, and on stock market graphs that plot earnings underneath price you can watch the gap between the two lines narrow.
That lopsidedness, with gains piling up slowly and losses arriving in a rush, is probably the most useful thing a long-run chart can show you. Most panic selling happens during the rush. Most of the wealth, historically, got built in the boring stretches in between.
The Market That Was Neither
Some of the most instructive stock market graphs in US history show a market that wasn’t really bullish or bearish in any useful sense.
The Dow got close to one thousand in 1966. Sixteen years later, in 1982, it still hadn’t broken convincingly above that level, despite inflation, oil shocks and a couple of genuine bears along the way. Dividends helped a little. Not enough to make anyone feel good about it.
On a price chart that’s one long, flat, frustrating line. The bull and bear labels kept firing the whole time and none of them helped much, because the real story was inflation quietly eating away at what those earnings were worth.
I think that stretch says more about real investing than any record-breaking bull run, mostly because nobody can tell you in advance how long you’ll be stuck waiting.
Conclusion
Bull and bear are fine as shorthand. The real information on stock market graphs is in the shape of each move, how long it took and how steep it got, and sometimes in the years when the line just goes sideways.
Keep an eye on the time scale and on earnings and the labels fade into the background. If you’ve ever sold near a bottom, that’s a strangely comforting thing to figure out.
