Have you heard of the terms “bullish” or “bearish” before? Have you wondered what does animals have to do with finance? This article goes through an overview of these terms and what they mean for you!
In the finance world, “bull” and “bear” are terms used to describe the condition of the market. As John Maynard Keynes famously noted, the financial market is driven by investors’ “animal spirits”, and these jargon terms precisely capture the psychological aspects of the investing world. How investors feel about the market and their confidence levels are reflected in the movement of stocks, making equity market performance and investor sentiment mutually interdependent.
A bull market is one where the value of assets is rising and the economy is performing well. This market is referred to as “bullish”. In a bull market, positive investor sentiments drive the market up, while the prospect of making positive returns attracts more investors to put their money into stocks, driving prices up further. In the economy, consumers and businesses have more money, implying employment and output are generally high. During a bull market, it is generally profitable to invest in growth stocks, which could maximise your chances of a positive return.
On the other hand, a bear market is facing declining value or depreciating, and the stock market is “bearish”. In a bear market, asset prices are declining and prices become more volatile. In these conditions, investors could withdraw their money and prefer to hold cash out of fear of losing money, driving down prices further. During a bear market, the country’s output and employment levels will fall as businesses are making low or negative profits. Many investors will prefer to pull out of equities and opt for safer instruments such as fixed income, or short-sell in the stock market to take advantage of the declining conditions.
Understanding the state of the market is imperative to managing your own investments. Hopefully that has provided you with a better understanding of the animalistic sentiments floating around in the financial market!
Disclaimer: This blog is not intended to provide financial advice and does not take into account individual circumstances. For financial advice, please see a financial adviser.
