The use of “bull” and “bear” to label financial markets has several different possible origins. However, the terms could come from how these animals attack: a bull thrusts its horns upward, symbolizing rising prices, while a bear swipes its paws downward, representing falling prices. Thus, a bull market is for a period of rising prices, and a “bear market” is for when prices are declining. Hence, if you follow the financial news, “bull market” and “bear market” are spoken so often that they might no longer remind you of actual animals.
Key Takeaways
- A bull market is when stock prices are on the rise and economically sound, while a bear market is when prices are in decline.
- The origin of these expressions is unclear, but one reason could be that bulls attack by bringing their horns upward, while bears attack by swiping their paws downward.
- A second explanation relates to early stock market participants and how they would profit from an uptrend or downtrend.
Market observers traditionally used bulls and bears to describe a range of situations and time frames—a sudden upswing over a single day might be called a bull market, or a particularly rough week might be labeled a bear market.
Analysts are now more specific about defining these terms. In today's financial world, bull and bear markets generally refer to prices rising or falling 20% or more from a recent trough or peak, usually over a few months. These labels can be applied to a single asset, a group of securities, or the securities market as a whole.
Whether you're bullish or bearish on animal metaphors, the bull and the bear are ingrained in the way we discuss the ups and downs of the market. There are no definitive answers about the origins of these market terms, but this article explores how bulls and bears came to battle it out in the language of finance.
Where Did 'Bulls' and 'Bears' Come From?
While the terms are relatively simple to understand, the impact a bull or bear market can have on your portfolio is undeniable. Both animals are known for their incredible and unpredictable strength, so the images they evoke about stock market volatility ring true.
Interestingly enough, the actual origins of these expressions are unclear. The “Oxford English Dictionary” sources the first instances to the 19th century, with the use of the terms rising quickly from about 1890 forward, while the “Merriam-Webster Dictionary” suggests their usage began earlier. Here are several of the most frequent explanations given:
- The story most often told relates to how each animal is said to attack. A bull will thrust its horns into the air, while a bear will swipe down. These actions metaphorically reflect the movement of a market, with bull markets trending up and bear markets trending down. While there is not much evidence to show that this is the true etymology of the terms, the attack strategies can at least help you remember which direction bull and bear markets move.
- Another origin story traces the use of one of the animal terms to the 16th century, when intermediaries in the sale of bearskins would sell skins they had yet to receive. They were speculating on the future purchase price of these skins from the trappers, hoping they would drop. The trappers would profit from a spread—the difference between the cost and selling prices. These middlemen became known as “bears,” short for bearskin jobbers, and this may be how the term eventually came to describe a downturn in the market.
- Bears and bulls were widely considered opposites because of the once-popular, fight-to-the-death fights put on between bulls and bears. In the stock market, the bulls and bears battle for profits.
The Historical Use of 'Bear'
While the “Oxford English Dictionary” starts its survey later, Merriam-Webster argues terms date much earlier than the 19th century. It says the term “bear” as used in trading came first:
Etymologists point to a proverb warning that it is not wise 'to sell the bear's skin before one has caught the bear.' By the 18th century, the term bearskin was being used in the phrase 'to sell (or buy) the bearskin' and in the name 'bearskin jobber,' referring to one selling the bearskin.
Over time, the name “bearskin jobber” was shortened to “bear.” The definition was expanded to include the financial markets, which were using “bear” already to describe a speculator selling stock.
One of the worst bear markets in U.S. history was precipitated by the stock market crash of 1929, which led to the Great Depression and lasted almost three years.
One of the earliest uses of “bear” to describe a marketplace transaction is from 1709 in an essay by Richard Steele, publisher of the British literary and society journal “The Tatler.” There, Steele defines a “bear” as an individual who places a real value on an imaginary object and thus is said to be “selling a bear.”
This negative image of the bear continues in Daniel Defoe’s “The Political History of the Devil,” published in 1726. In the book, Defoe writes, “Every dissembler, every false friend, every secret cheat, every bear-skin jobber, has a cloven foot.”
The Historical Use of 'Bull'
In contrast, when used to discuss the financial markets, the term “bull” has a much more positive connotation. A bull market and a bullish speculator are used when there’s an expectation of an increase in prices.
This relationship to speculation could have origins from the gruesome contests of bull- and bearbaiting. These began around the 1200s and reached the apex of their popularity during the Elizabethan era. People would flock to the events and gamble on the outcomes, betting vast sums on a contest featuring a bull or a bear. It’s not hard to see how this corresponds to the use in today’s stock market speculations.
Shakespeare makes several references to battles involving bulls and bears. In Macbeth, the ill-fated title character says his enemies have tethered him to a stake, but “bear-like, I must fight the course.” In Much Ado About Nothing, the bull is a wild but noble beast:
“I think he thinks upon the savage bull.
Tush, fear not, man; we'll tip thy horns with gold
And all Europa shall rejoice at thee,
As once Europa did at lusty Jove,
When he would play the noble beast in love.”
Examples of Bull and Bear Markets
Since they represent significant price swings, bull and bear markets have a great impact on the performance of your investment portfolio.
The S&P 500 Index often serves as a benchmark for the performance of the U.S. stock market. Since its launch in 1957, there have been 12 bear markets, according to Forbes. However, this includes a period in the 1990s when the index fell 19.9% off its most recent high—just short of the common yet arbitrarily defined threshold for a bear market pf 20%.
Using a 20% move to classify bull and bear markets has an impact on market sentiment and investor psychology. For instance, in the last few months of 2018, the S&P 500 dropped 19.78%, barely missing the common definition of a bear market. The fraction of a percentage point was enough to keep the “bear market” news from hitting the financial headlines, possibly contributing to that year's recovery by helping the markets avoid additional panic-driven selling.
Different factors contribute to a market downturn that eventually becomes a bear market. For instance, the S&P 500 tumbled 36% from 1968 to 1970 amid concerns about inflation resulting from U.S. military spending in Vietnam. When the dot-com bubble burst in 2000, it helped set off a bear market that would sink the S&P 500 by up to 49% over 56 months. More recently, concerns about inflation contributed to a bear market in 2022, with the benchmark index dropping 25% from January to October of that year.
While these bear markets cause pain across the economy, the trend for stocks overall has been to improve over time. The dozen recorded bull markets have helped the S&P 500 achieve total returns of over 65,000% since its inception. A good example is the bull market of 1970 to 1973 that followed the Vietnam War-related bear market of 1968 to 1970. S&P 500 returns of 73.5% during this time were driven by the so-called Nifty Fifty—a group of large-cap stocks with high growth.
The longest bull market in history ended relatively recently during the pandemic. The S&P 500 generated returns of 400.5% over 135 months from 2009 through 2020 as the economy recovered from the Great Recession and the markets kept pushing higher.
Is It Better to Be Bullish or Bearish?
A bullish investor believes stock prices will rise, so they want to buy to benefit from the price increase. Bearish investors believe prices will drop, so they sell, buy, then sell, and take advantage of them. Which is better depends on your risk tolerance, portfolio strategy, and investment horizon. Generally, when buying in a bullish market, it's essential to avoid buying at the peak. Conversely, bear markets offer chances to buy assets at lower prices, though you need a longer-term perspective and a view that the asset's value will eventually recover.
How Can I Protect My Portfolio in Case of a Bear Market?
Safeguarding your portfolio during a bear market typically means diversifying among different asset classes and business sectors. You might consider defensive stocks, bonds, or alternative assets that tend to have prices less correlated with changes in the broader market. You can also put in place stop-loss orders, rebalance your portfolio, and keep a cash reserve to provide you with flexibility and reduce potential losses in the event of a bear market.
How Do Economic Indicators Impact Bull and Bear Markets?
Growth in gross domestic product, the unemployment rate, and inflation are economic indicators that are crucial in shaping investor sentiment and market trends. Positive indicators can help push bullish markets by boosting investor confidence, while negative data can exacerbate bearish conditions as investors begin to anticipate slower economic growth or a larger downturn.
The Bottom Line
Bulls and bears have traditionally been used to describe significant upward and downward price moves in the financial markets. Various theories exist about how these animal terms took on their financial meaning—from vicious historical blood contests to how the animals attack to centuries-old speculative practices. While the origins are uncertain, in current usage, bull and bear markets now have specific definitions, typically representing market gains or losses of 20% or more.
