What Is Bearish
Updated: Nov 1, 2022
Bearish Meaning
Bearish is the term used to describe negative sentiment in the markets, an industry or an individual asset. Bearish or bears are used by investors to quickly describe how they feel about conditions which mean they expect prices to fall.
Investors will use the terms bearish and bullish to describe how they’re feeling about the market switching between the two constantly. Bearish can also be used to describe sentiment in reports, for example in the PMI report purchasing managers could say they’re bearish on future conditions.
Definition and Examples of Bearish
Bearish investors hold the belief that a market, asset or industry will fall in the future. Bear markets are defined when the price of an asset such as the S&P 500 experiences a 20% fall in price from the most recent highs.
Bears are seen as the pessimistic players in the market, bears seek to make money when prices go down by short selling a security or asset.
Recessions or periods of economic contraction can happen in parallel during a bear market. For example, during the 2020 COVID-19 pandemic the UK was hit with a recession and the FTSE100 market was bearish falling by over 30%.
Doves or holding a Dovish view is a term used to describe policymakers view on interest rates. Dovish individuals are bearish on interest rates as they prefer lower interest rates to stimulate the economy.
Alternate names: Bear(s), Short, Pessimistic, Sell, Dovish, Dove
How Bearish Works
Bearish is a pessimistic view of the future. Investors who view markets as bearish expect prices to fall in the future. One bear market study found that “Volatility increases with duration in bear markets.”[4] This shows that bear markets are dangerous and investors can expect large swings in their returns.
The term “bear” has been around since the 18th century, exclusively used to describe individuals speculatively selling stocks they think would be less valuable in the future. Bear or in referred to as someone selling “bearskin” was used to describe any seller in the market. [3] The term bear was the first to arrive in history, bulls or bullish came after as an alter ego to match the bear. These terms have now been altered to match current financial markets and dialogue where investors or journalists are discussing financial markets.
Placing a bearish trade would mean selling an asset or a security in expectation of it falling from now. For example, I may sell the FTSE100 with the expectation that the United Kingdom will see less growth in the future and their companies will be affected.
Bearish vs Bullish
Bullish and bearish are polar opposites. Bears have a negative expectation and anticipate prices to fall. Whereas, Bulls have a positive expectation and expect prices to rise. Bulls will go long and buy whereas bears will go short and sell.
What It Means for Retail Investors
Retail traders and investors must understand the basic financial jargon used to describe sentiment and views on the markets. Understanding, bullish and bearish is the starting point of grasping which direction participants in the market expect prices to go.
If an influential investor like Warren Buffett is bullish on stocks then you could use this as an advantage to look for similar stocks, if he was bearish then you may also expect stock prices to fall in the future.
Article Sources
U.S. Securities and Exchange Commission. “Bull Market, https://www.merriam-webster.com/words-at-play/the-origins-of-the-bear-and-bull-in-the-stock-market.” Accessed July 29, 2021.
Corporate Finance Institute. "Bullish and Bearish, https://www.merriam-webster.com/words-at-play/the-origins-of-the-bear-and-bull-in-the-stock-market." Accessed July 29, 2021.
Merriam-Webster. “The History of ‘Bull and ‘Bear’ Markets, https://www.merriam-webster.com/words-at-play/the-origins-of-the-bear-and-bull-in-the-stock-market.” Accessed July 29, 2021.
John M. maheu & Thomas H. McCurdy (2000) Identifying Bull and Bear Markets in Stock Returns, Journal of Business & Economic Statistics, 18:1, 100-112, DOI: 10.1080/07350015.2000.10524851 Accessed July 29, 2021.
