Bear Market: From Cautionary Proverb to Financial Lingo

From a Wall Street Journal column by Ben Zimmer headlined “Bear Market: From Cautionary Proverb to Financial Lingo”:

On Monday, the benchmark S&P 500 stock index entered bear-market territory for the first time since the beginning of the coronavirus pandemic. As traditionally defined, a “bear market” occurs when a major index sinks 20% or more from its recent high. Conversely, a “bull market” typically means an index has risen 20% from its recent low.

Market-watchers have embraced the 20% benchmark since at least 1990. On Oct. 12 of that year, the Dow Jones Industrial Average fell to an 18-month low, and a Wall Street Journal report declared, “It’s official. The bear has displaced the bull as Wall Street’s resident mascot.” As the article explained, “the Dow meets the Street’s commonest definition of a bear market—a 20% decline lasting two months or more from its previous high.”

While an “official” bear market is of relatively recent vintage, the term itself has a history going back centuries, to an old proverb warning against acting prematurely.

“Don’t sell the bearskin before you’ve caught the bear” is a 16th-century saying in the same proverbial family as “Don’t count your chickens before they hatch.” The featured animal varied early on—William Shakespeare, in “Henry V,” wrote of “the man that once did sell the lion’s skin while the beast lived,” and who ends up getting killed by the lion.

It was another famous English writer who brought the “bearskin” proverb to the financial world. Daniel Defoe, author of such novels as “Robinson Crusoe” and “Moll Flanders,” spent many years writing satirically about the rush for profits on the London Stock Exchange. (Sometimes Defoe wrote under pen names. As “Anti Bubble,” he helped popularize the term “bubble” for an intense or irrational period of market speculation.)

In 1704, in a newspaper he founded called The Review, Defoe wrote allusively about “the Society of the Bear-Skin Men” among the sketchy denizens of London’s Exchange Alley. These “bearskin men” were counting on prices falling and sold stock to buy back later at a lower price. They might sell shares they didn’t even hold, hoping to buy them cheaply before delivery of the stock was due (what traders would now call “short selling”). “Whenever they call in their money the stockjobbers must sell; the Bear-skin Men must commute, and pay difference money,” Defoe wrote in “The Anatomy of Exchange Alley” in 1719.

In the chatter around the London Stock Exchange, “bearskin” got shortened to “bear” to refer to a stock that a trader sells with the expectation of buying it back more cheaply, and such traders were swiftly called “bears” themselves. Optimistic “bulls” soon joined pessimistic “bears,” though the origins of the “bull market” are less obvious, with many competing etymological theories. (The bull may have been seen as a fitting counterpart for the bear because both were involved in blood sports pitting animals against each other.)

By the 19th century, speculators on Wall Street and elsewhere who banked on falling stock prices were routinely called “bearish,” a term that also got applied to downward market movements. Bearish types might profit from a “bear raid” (forcing stock prices to fall) or get caught up in a “bear trap” (a price plummet that lures in bears before a sudden upward reversal). And investors who inaccurately predict a market fall may end up in a “bear squeeze” when they are forced to buy at higher prices to avoid further losses.

The ursine metaphor has proved remarkably resilient since Defoe’s time, as seen in this week’s concerns that “Wall Street is back in the claws of a bear market,” as the Associated Press put it. Let’s hope those claws don’t dig too deeply.

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