What is a bear market and a bull market?

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Few phrases send chills down the spine of finance workers more than “bear market”.

And as we head into an uncertain 2023, the phrase is being uttered more and more.

So what is a bear market, and what will it mean if we face one this year?
Bear markets take place when a stock market declines more than 20 per cent for at least two months. (AP)

What is a bear market?

RMIT’s Associate Professor of Finance Angel Zhong said a bear market is a sustained decline in the stock market indices by more than 20 per cent, lasting for at least two months.

“In an Australian context, it will be the S&P All Ordinaries,” Zhong told nine.com.au.

“In the United States market it is usually the Dow Jones Index or the S&P500 Index.

More simply, the stock market goes down quite a bit for quite a while.

Bear markets are closely tied to recessions, but they aren’t synonymous. A bear market can exist without a recession, and a recession can exist without a bear market. But the two often go hand-in-hand.

The counterpoint to the bear market is the bull market.

What is a bull market?

Put simply, a bear market is bad and a bull market is good.

When a bear market is indicative of the share market going down, a bull market is when the market is showing a sustained rise.

The Wall Street bull represents a bull market.
The Wall Street bull represents a bull market. (AP)

Where do the names bear market and bull market come from?

The common explanation is the method of which both bears and bulls attack their prey.

When a bear attacks, it swipes and pounces in a downwards direction. When a bull attacks, it lifts its horns upwards. It is thought the downwards and upwards movement of the markets is named for those motions.

But that is probably not the true origin of the expression.

In the earliest days of the US trading market, one of the more speculative commodities was that of bearskins.

Consequently, bearskins became associated with market risks.

The term bull market came later, and etymologists have pointed to poet Alexander Pope with naming bulls as counterparts to bears on the market.

Alexander Pope has been credited with the phrase "bull market".
Alexander Pope has been credited with the phrase “bull market”. (Public Domain)

But there is much conjecture about the origins of both words.

The words bullish and bearish derive from the phrases however.

Why is a bear market predicted for this year?

The World Bank’s downward revision of the global growth estimates have had a chilling effect on the market.

“It cut the growth estimate in half,” Zhong said.

“Initially it had projected global growth would be three per cent in 2023.

“But last week they cut it from three per cent to 1.7 per cent.

“There is widespread panic there is another global recession coming.”

What is behind the slowing economy?

The recovery from the pandemic has had flow-on effects for the global economy, Zhong said.

High inflation means reserve banks around the world are lifting interest rates.

That is cooling the economy as a result, making it harder for businesses to finance further investments.

A resident cycles through the Evergrande city in Wuhan.
China’s slowing economy will make Australia’s financial year tougher. (Getty)

Also not helping is a substantial economic slowdown in China. Strict lockdowns followed by the massive spread of COVID-19 has impacted the world’s biggest manufacturing country substantially.

As the most populous country, China also buys a lot from the rest of the world, especially Australia. When China struggles, it has an impact everywhere else.

Can Australia escape a global recession?

In the 2008 global financial crisis, Australia was the only developed nation not to go into recession.

This was in large part to the minerals boom, where demand from China for coal and iron ore boosted the national economy.

But we can’t necessarily rely on that this time around, Zhong said.

“If our major customer is not going great, there is a good chance Australia will be hit harder this time,” she said.

“But given we have a very robust system here, I think we will be hit hard but we will survive.”

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