What are bull and bear markets?


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You've probably heard the terms bull and bear markets. But what do they actually mean?

In share parlance, when someone is described as a bull, or bullish, it means they are optimistic on a stock, or more to the point, they think its share price is going to rise. Conversely, someone who's a bear, or bearish, is pessimistic on a stock, and thinks its price is going to fall.

This leads to the terms bull market and bear market, where the former refers to a market trending upwards and the latter refers to a downward-trending market.

bull and bear market

As to how much upward or downward movement - and for how long - there must be before a bull or bear market is declared, or how much change in investor sentiment or behaviour there has to be to say a market has moved from bull to bear or vice versa, it's to a substantial degree in the eye of the beholder, or commentator - there is no hard and fast agreement or definition.

The only consensus is that a bull market is upward moving and typified by investor confidence; a bear market is the opposite. That said, as an example, a cyclical bull sharemarket, as defined by Shane Oliver, the head of investment strategy and chief economist at AMP Capital, is one "seen as a pattern of higher highs and higher lows spread over months or years until it's interrupted by a bear market".

He says a bear market is one experiencing "a 20% fall that takes more than a year to reverse".

Index fund specialist Vanguard has a slightly different take, saying: "While there is no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period." The details may differ but the sentiment is the same.

Similarly, there is no definitive agreement on where the terms bull and bear came from but, while their origins are obscure, they have been around for a long time, apparently since the early 18th century. Indeed, there are a number of theories on the terms' etymology.

One relates to the physical and behavioural nature of the creatures involved and the way they go about their daily, animalistic business. As any toreador or rodeo rider will tell you, a bull has an unnerving habit of throwing its head and horns upwards, and it's this particular action that some say accounts for the association of bull and things heading northwards.

There's also the view that, because bulls are renowned for their take-no-prisoners nature, that could have played a part in the association between bulls and a market on the go. When you think about it a, say, sloth or kitten market doesn't conjure up quite the same sense of vigour.

As for a bear market, some say this terminology comes from the way bears attack a foe or harvest their next meal, by striking with their killer paws in a downwards motion - and it's that southwards direction that counts. Another possible source of the association is the fact that bears hibernate. A snoozing bear for the whole of winter doesn't exactly say "go for it". That said, a bear when roused is not exactly a shrinking violet, can reputedly outrun a horse and, I suspect, could probably rip a bull to shreds. So go figure.

Another possible explanation for the term bear market derives from London bearskin traders, around 1700, who engaged in one of the earliest known examples of short-selling. These middlemen would sell bearskins before the bears had actually been caught.

They were speculating that, by the time the trappers produced the skins, the market price would have fallen and that they, the traders, could buy the skins at a significantly lower price than they had previously contracted to sell them for.

Under these future contracts, the lower the market price for bearskins at the time of receiving the pelts, the higher the traders' profits. Hence the suggested association between bears and a falling market.

There are some other, more esoteric, explanations for the connections between bears, bulls, rising and falling markets, but I found them a bit hard to bear, and more likely to be bull.

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Chris Walker was a business writer and co-founder of Corpwrite, a boutique content marketing and public relations agency. He was a regular contributor to Money magazine from its establishment in 1999 to his death in 2016.