Bulls and bears, oh my!
Grace Concelman | Wednesday, January 18, 2012
In January, when America seems to focus entirely on weight-loss strategies and predictions about the coming year, the battle between the bulls and the bears emerges.
No, I’m not talking about a cross-sport match-up of Chicago athletic teams; I mean the bulls and the bears on Wall Street.
“Bullish” and “bearish” are terms used to describe investor sentiment. Instead of saying “I think the stock market will go up,” we say, “I’m bullish.” Why? It’s a tradition. (And at Notre Dame who are we to argue with tradition?) It’s also fun to say, and it applies equally across different types of markets such as stock, interest rate, and commodity.
The opposite of bullish is bearish, which is the investor’s opinion that a market will fall.
It’s easy to remember which is which through an analogy based on the fighting habits of the two beasts. Bulls attack by ramming upwards with their horns, so bullish investors expect a market to go up. Bears do the opposite, attacking by swiping downward with their paws, so bearish investors expect a market to drop.
I’m bearish about the stock market in 2012. I don’t think we’re close to the end of the mess in Europe. Every day a summit of the European leaders gets delayed, something new gets downgraded, and the European Central Bank rolls out another grand plan to save the Euro. The situation has been building for two years now, and still there is no credible solution.
Every day, the U.S. stock market fluctuates based on the news coming out of Europe. Sure, some U.S. economic figures indicate that the economy is on the road to recovery, but collectively the data is mixed. Given the focus on the upcoming election, I don’t think we’ll see any economic turning points this year.
I might be totally wrong. Just because people make predictions doesn’t mean that they will come true. So why should we care about investor sentiment at all?
Actually, in the case of financial markets, sentiment can be a self-fulfilling prophecy. Often predictions do come true because people act based on their opinion about the future. Investors buy or sell financial assets because they think the assets will have greater or lesser value in the future than they do today. Bullish investors assign higher values to assets in the future, so they will be willing to pay more for the same assets today. Hence, the price will likely rise because of the mentality of the herd. Investor sentiment does influence markets.
Admittedly, my opinion about the stock market isn’t going to influence anything, but if we stretch the definitions slightly, there are lots of things we can be bullish and bearish about that we do influence.
What’s your sentiment on classes? It’s probably mixed. If you’re bullish about all of your classes, you’re either a second semester senior or studying abroad. If you’re bearish, you’re probably an engineer.
I’m bearish about the amount of sleep I’ll get as the semester wears on, but bullish about coffee consumption on campus.
I’m bearish about ever being able to find a parking space in the D2 lot. If the University ever wanted to make more money by selling parking spaces in premium locations to students, they would be a hot commodity.
Hopefully we’re all starting the new semester bullish about our GPAs, but naturally, expectations change as we realize that our January predictions only have so much power. Ask me again at midterms.
Grace Concelman is a senior majoring in finance and philosophy. She can be reached at [email protected]
The views expressed in this column are those of the author and not necessarily those of The Observer.