What’s a Bear Market, Anyway? And Why Is It Called That?

BUSINESS

Stock market plunges are in the news, but don’t panic! We’re here to help. Get to know your finance jargon. (BBC and Investopedia)

Check out our collection of resources on economics and finance.

Teachers, scroll down for a quick list of key resources.

Discussion Ideas

 

  • The Hang Seng experienced a bear market this week. What is a bear market?
    • A bear market occurs when a market falls 20% from its peak. A “bearish” market is a sign of pessimistic investors who think a market is going to lose value. “Bearish” investors, therefore, are likely to sell.

 

  • What is a bull market?
    • The opposite of a bear market is a bull market. This occurs when a market increases 20% from its previous peak. A “bullish” market is a sign of optimistic investors who think a market is going to increase in value. “Bullish” investors, therefore, are more likely to buy.

 

 

  • How in the world did bull and bear markets get those names?
    • Ah, good question. The terms are old—originating in 16th- or 17th-century Europe. As in all market-related issues, there is a lot of speculation.
      • The easiest way to explain the language is also a great mnemonic device to help you remember which market is which.
        • Bears attack or defend by swiping their mighty paws down on their adversary. Bear markets are associated with downward-falling prices.
        • Bulls attack or defend by bucking their horns up at their adversary. Bull markets are associated with upward-rising prices.
      • Another explanation for the language has to do with the London Stock Exchange. In the 17th-century, “there was a bulletin board on which traders posted offers to buy different stocks. When there was a high demand for stocks, the board was full of bulletins, commonly called ‘bulls.’ When there was little demand, the board was ‘bare.’ Therefore, a bull market is when the market is up (lots of buyers), and a bear (bare) market is when the market is down (lots of sellers).”
      • The oddest explanation concerns a 16th-century phrase “Don’t sell the bear’s skin before you’ve killed him,” a more brutal way of saying “Don’t count your chickens before they’ve hatched.” (People were tougher back then.) Well, salesmen called “bearskin jobbers” would sell bearskins to buyers before they actually bought the skins from trappers. The goal would be to sell higher than what they thought the trapper would charge. These short-selling bearskin jobbers thrived in falling markets, earning the title “bear’s market.”

 

  • Two weeks ago, China devalued its currency 3.5% against the U.S. dollar. What is currency devaluation?
    • Currency devaluation occurs when a government lowers the value of its money (such as the American dollar or the Chinese renminbi). Currency devaluation is often enacted to combat trade imbalances or protect domestic markets. It has two major impacts:
      • Exports become cheaper, making them more available to the global market.
      • Imports become more expensive, making domestic consumers less likely to buy them.

 

 

 

  • What is premarket trading?
    • Premarket trading refers to big trading deals made outside a market’s official hours of business, usually between 4-9 a.m.. Big banks and investment firms engage in premarket trading, and many investors use premarket activity as an indicator of the market as a whole or individual security (stock). Check out premarket trading news here.

 

TEACHERS’ TOOLKIT

BBC: Get to know your finance jargon

Investopedia: Dictionary and Videos

Investopedia: Bear Market

Defreitas and Minsky: The Real Origin of the Terms Bear Market and Bull Market—Revealed!

CNN: China devalues its currency: What you need to know

The Motley Fool: 6 things you should know about a stock market correction

Bloomberg: Commodities Slump to 16-Year Low on Mining, Oil Stocks

CNN Money: Pre-Market Trading and After-Hours Trading

3 responses to “What’s a Bear Market, Anyway? And Why Is It Called That?

  1. Pingback: The ‘Fearless Girl’ and ‘Charging Bull’: an analysis. – Subversive Liberty·

  2. I’m not sweating it either, much 🙂

    Great post. Thanks for the informative article.

    Laura Beth

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s