The 20% rule tells you what happened, not what is happening. Here is how investors read the backdrop in real time: trend, breadth, credit and volatility, with the data behind each.
A bear market is a decline of 20% or more in a broad index from its recent high. The SEC’s investor site, Investor.gov, adds a time element: generally a fall of 20% or more over at least two months. A bull market is the opposite: a sustained rise, often dated from the bear‑market low.
A fall of 10% to 20% is usually called a correction. The difference is explained in correction vs bear market.
Two things to keep in mind. First, the 20% line is a convention, not a law of markets. Second, you only know a bear market started once the index is already down 20%. By then, much of the damage is done.
Recent declines ranged from just under 20% to more than half the index. These are peak‑to‑trough falls in the SPDR S&P 500 ETF (SPY) from Exent’s crash replay data, as of Sep 30, 2026:
| Episode | S&P 500 (SPY) peak to trough | Median large stock | Bear market by the 20% rule? |
|---|---|---|---|
| Global financial crisis, 2007–09 | −56.5% | −61.6% | Yes |
| Trade-war selloff, 2018 | −20.2% | −22.4% | Borderline |
| COVID crash, Feb–Mar 2020 | −34.1% | −40.8% | Yes |
| Inflation bear market, 2022 | −25.4% | −32.7% | Yes |
| Tariff selloff, 2025 | −19.0% | −20.1% | No, just short |
Look at 2018 and 2025. Both sat right at the 20% line. For someone holding stocks, a 19% fall and a 21% fall feel the same. That is why the label matters less than the conditions around it. The full history is in stock market crashes in history.
Investors usually combine four kinds of evidence, because each one fails on its own. No single indicator calls turns reliably.
| Signal | What it measures | Bull-market reading | Bear-market reading |
|---|---|---|---|
| Trend | Index vs its 200-day (or 10-month) moving average | Price above a rising average | Price below a falling average |
| Breadth | How many stocks take part in the move | Most stocks rising, equal weight keeping up | A few large stocks carry the index |
| Credit | Extra yield on risky corporate bonds | Spreads tight or narrowing | Spreads widening fast |
| Volatility | Size of daily swings, e.g. the VIX | Low and stable | High and jumpy |
Trend is the simplest. The 200‑day moving average smooths out noise. It lags, so it confirms turns rather than predicting them.
Breadth asks whether the rally is broad. See market breadth.
Credit often moves before stocks, because bond investors focus on default risk. The Federal Reserve Bank of St. Louis publishes the ICE BofA US High Yield option‑adjusted spread on FRED. See credit stress.
Breadth has been narrow. The index is up, but the average stock has lagged. In Exent’s data for the year to Sep 30, 2026, only 188 of the 477 largest US stocks (39.4%) beat the S&P 500. The median stock returned 4.7%, against 15.1% for SPY.
| Calendar year | S&P 500 (SPY) | Equal-weight S&P 500 (RSP) | Gap |
|---|---|---|---|
| 2023 | +26.2% | +13.7% | 12.5 pts |
| 2024 | +24.9% | +12.8% | 12.1 pts |
| 2025 | +17.7% | +11.2% | 6.5 pts |
| 2026 to Sep 30 | +12.1% | +9.1% | 3.0 pts |
Total returns as of Sep 30, 2026. A narrow market is not a bear market. It does mean the index can hide weakness underneath. More in is the stock market rally too narrow?
No. Bear markets and recessions often overlap, but not always. The National Bureau of Economic Research (NBER) dates US recessions. Its list includes recessions starting after the peaks in December 2007 and February 2020, both of which came with deep bear markets.
The 2022 bear market had no NBER recession. Stocks fell because inflation and fast rate rises pushed valuations down, not because the economy shrank. That is why reading the economy and reading the market are two different jobs.
Often it is too simple. Many professionals think in market regimes instead: the backdrop of liquidity, credit, growth and sentiment that makes some assets do well and others struggle. A regime can be risk‑on while the index is flat, or fragile while the index makes new highs.
Regime models combine several pillars, such as liquidity, credit stress, the economic cycle and sentiment. They classify the backdrop rather than predict the next move. The idea is explained in what is a market regime?
By convention, when a broad index like the S&P 500 is 20% or more below its high. Because that is only clear after the fall, investors also watch trend, breadth and credit spreads for earlier signs.
A correction is usually a fall of 10% to 20% from a high. A bear market is a fall of 20% or more, typically lasting at least a couple of months.
Nobody officially. The 20% rule is a market convention used by the media and analysts. Recessions, by contrast, are dated by the NBER in the United States.
Yes. When a few very large stocks lift the index, most stocks can lag. In the year to Sep 30, 2026, only about 39% of the largest US stocks beat the S&P 500 in Exent’s data.
No. Trend, breadth, credit and volatility each give false signals on their own. Combining them gives a clearer picture of the backdrop, not a forecast.
Market Intelligence reads the market regime and tells you whether the backdrop favors taking risk or protecting capital.
Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.