Fables teach us a lot about ourselves. Just like The Boy Who Cried Wolf or The Tortoise and the Hare, fables have created metaphors which have stayed with us through life, shaping our behavior and perspective. Fable-based metaphors have also influenced terminology on economics, including the terms “bullish” and “bearish”. 

The Origin Behind the Terms Bullish and Bearish

The terms “bullish” and “bearish” come from ancient fables and practices. 

Bearish can be traced back to the 18th century when fur traders would sell the skin of a bear they had not yet caught with the mindset that the market price for fur would dip later, making a profit off the transaction. Investors with a bearish mindset have the belief that prices will fall and that investments will go down and adapt their philosophy accordingly. 

Similarly to how bulls attack with their horns upward, the term bullish represents an optimistic perception where investors expect the market to go up and the prices to rise. 

A bullish investor is driven by the fear of missing out on an investment, while a bearish investor is influenced by fear of losing wealth. 

Bullish vs. Bearish Markets

Just like an investor can embody a bullish or bearish mindset, so too can the markets. 

Propelled by thriving economies, sustained increase in prices and low unemployment, a bull market is born. A bullish market influences investors to be eager to buy or hold onto securities, taking advantage of a strong economy, thus creating a buyer’s market. 

In contrast, a bearish market often occurs during economic slowdowns and higher unemployment. A bearish market develops when prices have fallen by at least 20%, where financial loss is great and financial growth is out of sight. A bearish market shapes investors to be pessimistic about the market’s future, thus choosing to make safer investment choices.

Characteristics of Bullish and Bearish markets

Both bullish and bearish markets foster characteristics that make them unique. Within each market, the mindset for supply and demand differs. In a bullish market, there is strong demand and weak supply for securities, whereas in a bearish market, investors are looking to sell and then buy as the demand is lower than supply, and share prices drop.

Bullish and bearish markets influence the psychology of investors due to conflicting economic activities. Since bearish markets are associated with a weak economy, many businesses cannot earn huge profits as consumers are not spending enough. With this in mind, in a bearish market, sentiment is negative; therefore, investors move money into fixed-income securities, waiting for positive growth in the stock market. 

Meanwhile, in a bullish market, individuals can spend easily and willingly, which strengthens the economy. A strong bullish market influences investors to participate actively and be confident in gaining future profit.  

Bullish and Bearish Markets Throughout History

The roaring 1990s are regarded for their record-setting bullish market. 1987-2000 marked the longest bullish market in S&P 500 history, where the index return was 582%. The 12-year bullish market resulted from the successful economy in the 90s, shaped by the end of the Cold War and the beginning of the technology and internet era. 

During this time, the United States economy was growing rapidly. Investors had a bullish mindset, believing in the internet’s influence on the future and economy. The rise in technology prompted investors to invest in dot-com stocks (internet-based companies in the 1990s), understanding that the internet would be a profitable industry.

More recently, the post-pandemic supply chain crisis led to the bear market of 2022. The disruption in the supply chain due to the aftermath of the COVID-19 pandemic and Russia’s invasion of Ukraine had consequences for the market. 

These events led to the highest US inflation in decades, and the Maximum S&P 500 declined to 25%. Throughout this period, investors were concerned about the low employment rate, inflation, and the rise of interest rates by the Federal Reserve. 

Planning For a Bullish or Bearish Market

Understanding the interconnection between bullish and bearish markets is crucial when making an investment. Distinguishing between a bullish or bearish mindset can also provide greater awareness and guidance for investors in formulating different financial choices. As trends influence a market’s success, preparing for bullish and bearish markets through financial planning will allow for a positive return rate. 

While markets constantly undergo movement that affects real businesses and technologies, knowledge of the bearish and bullish will benefit you in any way you invest.