What is... | August 16, 2012

What is a bull (or a bear) market?

There’s a famous sculpture in New York’s Wall Street of a charging bull. This is because a market with rising prices is often known as a “bull market”. But what does a bull market look like? And what other animals are used to characterise the financial sector?

Fighting chance
A bull market is typically one with rising prices and a “bear” market is typically one with dropping prices.
There is no one set definition of the terms and they can also refer to the movements of individual stocks and bonds, as well as sentiment surrounding markets. Even people can be known as bullish or bearish – with those buying investments on the expectation that they will rise in price being a bull and those pessimistic about the state of the market a bear.
Some say the origin of the terms may relate to the animals’ fighting styles – “spirited” bulls had been widely considered to be the opposite of “sluggish” bears because the animals were historically pitted against each other in bull-and-bear fights.
In an earlier eZonomics poll, only 38% of respondents knew the difference between a bull and bear market.

Wow, that’s a big bull
The dot com boom in the late 1990s is an extreme example of a bull market.
Prices in the technology sector rose aggressively (before falling dramatically). The NASDAQ – a share market index – rose from 676.95 at the end of 1992 to a high of 5048.62 in October 2000. After the crash in April 2001, it was at 1638.80 and dropped further after the 9/11 attacks on the World Trade Center.
Bullish sentiment is acknowledged to have been one of the drivers of prices, as investors ploughed money into technology companies amid the information revolution.

The rest of the animal kingdom
Bulls and bears are not the only animals used to describe financial markets.
Doves and hawks are also commonly referenced in relation to attitudes to inflation and policy positions. Doves – placid and peaceful in the animal kingdom – tend to prefer low interest rates. Hawks – known as more aggressive – tend to seek monetary tightening, or higher interest rates.
During the global financial crisis, there was a lot of talk of an unexpected event as a “black swan” in reference to the Nassim Taleb book of the same name and Ireland’s boom was referred to as the “Celtic tiger”.


eZonomics team
.(JavaScript must be enabled to view this email address)