If you’ve had any association with the stock market at all, you’re no doubt familiar with the terms “bear market” and “bull market”.
A “bear” market is one that is headed steeply downward with prices dropping. Technically, it’s a drop of 20% or more from previous highs.
A “bull” market, conversely, is one that is headed upwards with prices increasing. “Bearish” sentiment refers to the negative outlook someone has for the markets and the expectation that they’ll head downward, while “bullish” refers to an optimistic sentiment that foresees the market and prices going up.
The 20% drop threshold isn’t particularly special, it’s more symbolic and is used to guide trading, but it does pose a psychological hurdle for many traders.
Bear markets are a regular occurrence in the stock market and the market rebounds at various speeds over time. Since World War II, there have been nine drops of 20% to 40% in the S&P 500, and three over 40% (not including 2022.) The last bear market occurred in February and March 2020, when the S&P 500 dropped 34%.
Why are they called “Bear” and “Bull” markets?
Why not lions and tigers? Or snakes and mongooses? Or cats and dogs? Like so many nicknames and coined phrases, the origins of the terms “bull” and “bear” as they pertain to the stock market are clouded in history. At some point in time, they became accepted terminology to describe the state of the market. But, their specific origins are unclear.
Both animals are known for their ferocity and unpredictability, both are bold and savage, so they are both certainly fitting symbols for stock market movements.
One explanation holds that the terms derive from the way each animal attacks. Bulls thrust their horns upwards while bears swipe with their claws downwards.
In medieval and Elizabethan times, bulls and bears were often pitted against each other in arena fights to the death and were considered opposites of each other. People used to gamble heavily on the outcomes of the fights. Thus, another association with event speculation.
Another popular explanation comes from the old American fur-trapping days. The middlemen in the sale of bearskins often had to sell skins they had not yet received. They were forced to speculate on the future price they would get from the trappers bringing them in. These middlemen were often called “bearskin jobbers” or “bears” for short. The term stuck for describing a downturn in the bearskin market.
Whatever the origins of terms bull and bear are, there’s no doubt that today they are fitting symbols for an unpredictable stock market that often displays definite beast-like behavior.