BEAR AND BULL MARKETS

The terms bear and bull refer to two opposing attitudes about the future of the economy. The meanings of the terms are symbolized in their names. Bears tend to be overbearing and push prices down. They believe that stock prices, currencies, commodities, or other financial investments will fall. Viewing the future pessimistically, bears are cautious investors and may quickly sell their holdings to avoid the losses they are certain will come. Bulls, however, run fast with their heads (and horns) high; they want to grab stocks and push prices upward. Bulls believe stock and other investment prices will rise. This optimism leads them to confidently invest in the stock market, believing their investments will increase in value.

Bear markets tend to coincide with recessions or downturns in the business cycle, while bull markets coincide with "boom" periods of high growth. The greatest bear market in U.S. history occurred after the stock market crash of 1929 when, over a period of two months, the Dow Jones index of industrial stocks lost 50 percent of its value. Because investors had little faith that the economy would rebound they avoided buying stocks and sold their investments before all their value was lost. This bear market existed until the end of World War II (1939–1945). In fact, it was not until the early 1950s that the Dow Jones Industrial Average regained its high of September 1929.

The terms bear and bull were already being used in the United States in the mid-1800s, when they were often used to refer to investors who sold and bought purely speculative stocks (called "fancy stocks") of companies that had little chance of ever earning a profit. Before the Great Depression, the decade of the "Roaring Twenties" was the greatest bull market the United States had ever seen. Between 1921 and 1929 the stocks on the New York Stock Exchange grew more than 800 percent in value. The next great bull market occurred between 1954 and 1969, but this time investors' optimism was based not on speculation (risk taking with the stocks of companies the investor knows little about) but on real growth in the profits of U.S. corporations. In the 1970s, runaway inflation, higher oil prices, and political turmoil led to the first extended bear market since the 1930s. Beginning in 1982, however, the U.S. economy began to enjoy the longest and most dramatic bull market in its history. The Dow Jones Industrial Average stood at 831 in 1982, but in early 1999 it crossed the 10,000 level for the first time ever.