With increased coverage of global economics and stock markets on the news at the moment, you may wonder at times if you have accidentally flicked on to one of David Attenborough’s wildlife documentaries. It is commonplace for financial commentators to reference animals to explain stock market trends. Below, we explain some of the terms and their meanings:
Bulls and Bears
Let’s start with two terms you’ve likely heard often in your investing experience: bulls and bears. There are variations, of course – bull market, bear market, bullish, bearish. Here’s the gist: bull is in reference to the way bulls attack, horns up. Bears, on the other hand, attack by drawing their paws downward. In essence, the direction of their attacks correlates to the way markets are moving.
Broadly, a bull market is a period in which optimism is high and prices are generally rising, usually over months or years. There can still be down market days or months, but the overall trend remains up. A bear market, meanwhile, applies when there’s a prolonged period of falling prices and pessimism.
Doves and Hawks
References to our two-winged friends tend to take off whenever we hear from central bankers on monetary policy. If you hear that a central bank statement took a dovish tone, that tends to mean central bankers are pessimistic about economic growth prospects and may be considering cutting interest rates to provide an economic boost. Conversely, hawkish central bankers are generally optimistic about economic growth prospects, but worried about inflation creeping higher. A hawkish tone could include a forecast for interest-rate hikes as a way to keep inflation in check.
A cash cow is a metaphor for a dairy cow that produces milk over the course of its life and requires little to no maintenance. The phrase is applied to a business that is also similarly low maintenance. Modern-day cash cows require little investment capital and perennially provide positive cash flows, which can be allocated to other divisions within a corporation. They are low risk, high reward investments.
Dead Cat Bounce
A dead cat bounce is a temporary, short-lived recovery of asset prices from a prolonged decline that is followed by the continuation of the downtrend. Frequently, downtrends are interrupted by brief periods of recovery — or small rallies — during which prices temporarily rise.
The name “dead cat bounce” is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.
Ah, those beautiful black swans. Wait, you haven’t seen one? That’s because they’re relatively rare — just like the market events named after them. In the financial world, black swans represent unpredictable, massively transformative events that can shape the world — and in turn, the investment landscape. Beyond being unexpected and having a major impact, the third defining characteristic of a black swan event is that it’s easily explained, or rationalised, after the fact as having been predictable. It’s the “I knew it all along” phenomenon.