Bull & Bear Market?

Every profession like to have its own vocabulary and slang. Vocabulary is essential in describing something precisely, while slang helps give meaning to a professional terminology or concepts – and a sense of belonging to a community.

The financial markets are packed with slang. I thought it would be interesting starting a new category which will describe a few specific words or slang concept associated with the markets. Let’s start this new “terminology” category with a slang which I recently came across in a discussion: Bull & Bear Markets.

The use of “bull” and “bear” to describe markets comes from the way each animals attack an opponent. A bull will attack with horns high up in the air. The bear will slash down its paws. It’s quite easy to grasp this allegory: if the trend is up it’s a bull market; if the trend is down, it’s a bear market.

Bull Market
A bull market is characterized by optimism. Investor confidence is high; the markets are on the rise, and they expect them to keep going north for quite some time. As investors are logical homo-economicus, they will take advantage of this situation and buy in anticipation of further capital gain. They usually happen as a result of an economic recovery, an economic boom or investor psychology.

Bear Market
A bear market is characterized by pessimism. Investors lose confidence in the market; they anticipate them to go south in the future; as a result, they sell their stock to freeze their profit – or limit their losses. The negative sentiment feeding on itself from there. They usually occur as a result of a moribund economy, with high unemployment and / or inflation rising.