Bulls are seen as optimists on the stock exchange. They invest their money in the belief that prices will rise, allowing them to achieve high returns. Bears, on the other hand, are pessimists. They anticipate prices falling. The terms “bull market” and “bear market” come from these two symbols and the traits associated with them.
Rising and falling markets – what bulls and bears have to do with the stock market
Statues of bulls and bears can be found in Frankfurt, on Wall Street in New York and in Shenzhen. But what do these two animals have to do with the financial markets? They symbolize the two most important phases of the stock exchange – bull and bear markets. We explain what it’s all about.
Bull and bear markets: What does it mean?
In a bull market, prices rise over a longer period of time. Another term for this is a rising market. A bull market is based on investors’ expectations of positive market performance. Investors who believe that prices will rise are therefore referred to as bullish.
The bear market – or falling market – describes the opposite scenario. Investors have little faith in the market, individual sectors or companies. They assume that prices will drop, which is why investors who anticipate falling prices are also referred to as bearish.
Price fluctuations on the market are caused by the investors’ differing outlooks and how they act as a result – bearish and bullish investors mean that prices are constantly going up and down.
The bull and bear symbols are a wonderful representation of the ups and downs of the stock exchange and of investors’ traits – when a bull attacks, it thrusts its horns upwards. In contrast, a bear swipes its paws downwards.
The origin of the “bull” and the “bear” at the stock exchange
There is no conclusive answer as to where the bull and bear symbols come from. One possible explanation: in the 16th century, the Spaniard Don Joseph de la Vega wrote “The Confusion of Confusions”, possibly the oldest book about the stock exchange in the world. Visiting the Amsterdam stock exchange reminded him of bullfights in South America, where bulls sometimes had to fight against bears.
Booms, crashes and rallies – other terms used to describe the stock market
There are a few other terms relating to bear and bull markets which you’re bound to be familiar with: a boom, for example, refers to a very strong bull market during which prices increase significantly. However, excessively high expectations can also create speculative bubbles. We explain exactly how that happens in the article entitled “What is a speculative bubble?”
A crash is the opposite of a boom; in other words, a sharp fall in prices. The best-known example from recent history is the 2008 financial crisis, which is explained in greater depth in the article “2008 financial crisis – a review and the lessons learned.”
As well as booms and crashes, there are also rallies, which are short periods during which prices climb sharply. The term “year-end rally” often crops up in this context.
Then there are market corrections, a price trend in the opposite direction for a limited period of time. An example of this is a brief fall in prices during a general bull market run.
The stock markets fluctuate constantly
The fact that share prices are continually changing is part and parcel of the stock exchange. An exchange is a marketplace where investors meet. These investors have a bearish or bullish outlook. They expect prices to fall or rise, causing stock market prices to fluctuate constantly. We explain why share prices fluctuate in the article entitled “Why do prices fluctuate?”.