The rally of the stock market keeps the stock prices in motion, thanks to the bulls vs bears – the stock market politics. They are the trends of the stock market controlled by two types of investor parties. Knowing the fundamentals of bulls and bears is crucial. Bulls keep the market in an upward trend and bear in a downward trend. The stock market movements are bullish or bearish in the longer run.
To understand this bulls vs bears game, the trend is the first thing to understand. A trend is the overall direction of a market or an asset’s price. In technical terms, the trend lines identify a trend on the price chart of a particular security.
In the stock market, there are multiple stocks in different sectors. When the stock market is bullish, this means that all the stocks listed in the stock market are going upstream. Whereas, the bearish market reflects that all the stocks listed in the stock market are going downstream.
The U.S. Securities and Exchange Commission defines a bull market as a period when there is a market rise of 20% or more in broad-based market index funds for at least two months. While the U.S. Securities and Exchange Commission defines a bear market as a period when there is a market drop of at least 20% over two months.
Origin of Bear and Bull
The terms ‘bear’ and ‘bull’ are thought to derive from how each animal attacks its opponents. Just like a bull thrusts its horns up into the air, while a bear will takedown. Someone then related metaphorically these actions of the two animals to the movement of a market.
Historically, the middlemen, while trading bearskins, would sell skins they had yet to receive. They would speculate 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 price and the selling price. These middlemen became known as “bears,” short for bearskin jobbers, and the term stuck for describing a downturn in the market. Conversely, because bears and bulls were widely considered being opposites because of the once-popular blood sport of bull-and-bear fights, the term bull stands as the opposite of bears.
So, a bull is someone who buys securities or commodities, anticipating a price rise, or someone whose actions make such a price rise happen. In contrast, a bear is someone who sells securities or commodities, anticipating price decline.
Certainly, a majestic bull and a powerful bear present striking images, but how did these two come to be associated with the stock market and its politics? Have you ever thought about this?
First, let’s have a brief look at politics. If we stick to the book, politics is the set of activities that are related to decision-making in groups or other forms of power relationships between individuals or parties. Politics is often associated with countries and democracies, but it’s everywhere happening in our life.
For instance, just like in households, when a child wants something, he would insist the mom ask dad. That is back channeling, and that is what politics is all about. So, it is in human nature.
The stock market politics, just like that of the government, is to gain and maintain power. Bulls want the stock market to remain in an upward trend and the bears want the market to remain in a downward trend.
Most of the time, there is a balance of power between bulls and bears, which we call equilibrium. However, bulls are always working to take the market in a bullish trend, when it’s in a bearish trend and the bears focus on taking the market in a downward trend when it’s in a bullish trend.
The famous German sociologist and political economist, Max Weber, defined power;
“Power is ‘the probability that one actor within a social relationship will be in a position to carry out his will despite resistances.”
Just like in any sport, one team wants to win over the other. Bulls is one team in the stock market and bears are the other. Those who are politically involved in the market are institutional investors, large brokerage firms, financial institutions, etc.
When a stock market will form a bullish trend and continue to be bullish, the bears will certainly remain quiet and wait for the best opportunity to hit back and drive the market to a bearish trend. Similar is the case with bulls, they will wait for the right moment to enter and pump the stock market when things are bearish.
Bulls and bears are among those parties that are institutional investors, large brokerage firms, financial institutions, etc. Things are mostly occurring in the back channel, and for a normal investor, it is arduous to get the insight information. But there is a strong network of web media and social media, which can update you on the latest happenings in the market.
Also, the investor needs to look at the technical indicators of a particular stock, and the overall performance of the sector in which that stock lies. So, why do you have to do this step by step? To ensure that you anticipate the trend correctly.
If the investor is sensing the market to enter a bull run, it means that person is optimistic about the market conditions. And, if the investor is sensing a bear run, it means that person is pessimistic about the stock market and believes that prices are likely to fall.
Apart from political influences, unexpected tragedies or natural disasters can affect the stock market, shaping the bull or bear market. One prominent example of such a scenario is the 9-11 indecent.
9-11 is probably one of the most defining moments in United States history. Following the attack, U.S. stock markets closed and remained that way for the rest of the week. Once the market re-opened, the S&P lost 11.6% in four trading days.
Bulls vs bears are very much a core of the stock market or any efficient market in the world. However, things are gradually changing in the financial markets with technological advancements. To better explain this cryptocurrency market is an ideal example.