Are you feeling bullish?

At almost 4,000 days, we’re riding along on what has been called one of the longest bull market in history. And, since current market conditions appear to be changing, everyone is wondering: has the bull ended its run? Are we entering a bear market?

The terms “bull” and “bear” are typically used to describe market conditions:

  • A “bull market” is defined by a 20% rise from a market index’s lowest point and marks a period of extended optimism and rising prices.
  • A “bear market” is defined by a 20% decline from a market index’s latest high and marks a period of extended pessimism and falling prices.

Mindsets & actions can also be described as “bullish” or “bearish”. So, from where do these terms originate and what do they really mean?

According to Merriam-Webster1: “In the jargon of stock-market traders, a bull is someone who buys securities or commodities in the expectation of a price rise, or someone whose actions make such a price rise happen. A bear is the opposite – someone who sells securities or commodities in expectation of a price decline.”

Some historical context

We recently read a fascinating article in The Wall Street Journal authored by financial columnist Jason Zweig2. During the course of examining the phenomenon of bull and bear markets, Zweig explained that the terms began to be used in the context of markets in Britain, in the early 18th century.

Originally the term “bull” defined an eager buyer. “Bear” originates from the expression “to sell the bear’s skin before one has caught the bear” – or, in the words of Mr. Zweig, “an apt metaphor for a short sale”. Another theory is that they originated from each animal’s method of attack: a bull will lower its head and then use its horns to thrust upward while a bear will swipe down.

Simple terms can create a self-fulfilling prophecy

Zweig goes on to point out nobody really knows who came up with a 20% rise/decline definition to identify bull/bear markets and observes that the 20% threshold seems to have become entrenched after the 90s.

While the origin of the terms “bull market” and “bear market” might be arbitrary, the terms do describe very specific market conditions. As Zweig astutely warns: “Consider, too, that the terms can create a self-fulfilling prophecy.”

For example, between September 20 and December 24, 2018, the S&P 500 fell 19.78%. Another 0.22% was all it needed for financial headlines to scream “Stocks enter bear market territory!” This could easily have led to a sell-off, deepening the decline. “Instead,” writes Zweig, “the 19.78% tumble enabled the market to pause without panicking and, ultimately, to resume its rise in 2019.”

This raises an important point about investor psychology. The simple act of collectively labelling a particular period as a “bull market” or a “bear market” can trigger the very same market behaviour.

The fundamental strengths and integrity of any financial position requires careful, often quantifiable, consideration. But market direction also informs investment decisions. Seasoned wealth management professionals are acutely aware of the importance and impact of not so quantifiable market sentiment.

So while we have, in reference to market volatility, preached against the distraction of financial media “noise” in the past, that very same financial media noise may be signalling a change in sentiment.

We’re paying attention.


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