BUSINESS

Stock market plunges are in the news, but don’t panic! We’re here to help. Get to know your finance jargon. (BBC and Investopedia)

Check out our collection of resources on economics and finance.

Teachers, scroll down for a quick list of key resources.

Discussion Ideas

• What is a “market”?
  • A market refers to a place where buyers and sellers can interact.
  • A market can be a real place, such as the trading floor of the New York Stock Exchange. It can also be a virtual place, such as a web-based enterprise.
  • A “market” can refer to an entire stock market or market index, such as the New York Stock Exchange or Hong Kong’s Hang Seng Index. A “market” can also refer to an individual stock.

 

• The Hang Seng experienced a bear market this week. What is a bear market?
  • A bear market occurs when a market falls 20% from its peak. A “bearish” market is a sign of pessimistic investors who think a market is going to lose value. “Bearish” investors, therefore, are likely to sell.

 

• What is a bull market?
  • The opposite of a bear market is a bull market. This occurs when a market increases 20% from its previous peak. A “bullish” market is a sign of optimistic investors who think a market is going to increase in value. “Bullish” investors, therefore, are more likely to buy.

 

• Can bull and bear markets exist at the same time?
  • Yes, and markets depend on that interaction—people willing to buy, people willing to sell. Investors themselves can be both bullish and bearish—you can be “bearish” on a specific security (stock) that you don’t think will be profitable, but remain bullish about stock trading in general.
  • These are familiar symbols:
    • There’s a 7,000-pound statue of a raging bull in New York’s Financial District, just blocks from Wall Street—it was donated following the disastrous 1987 stock market crash. There is no bear.
    • A bull and bear warily face off in front of the Frankfurt Stock Exchange in Germany.
    • The St. Louis, Missouri, headquarters of the giant investment banker Stifel is marked by “Market Forces,” a sculpture of a bull and bear in mortal combat.

 

• How in the world did bull and bear markets get those names?
  • Ah, good question. The terms are old—originating in 16th- or 17th-century Europe. As in all market-related issues, there is a lot of speculation.
    • The easiest way to explain the language is also a great mnemonic device to help you remember which market is which.
      • Bears attack or defend by swiping their mighty paws down on their adversary. Bear markets are associated with downward-falling prices.
      • Bulls attack or defend by bucking their horns up at their adversary. Bull markets are associated with upward-rising prices.
    • Another explanation for the language has to do with the London Stock Exchange. In the 17th-century, “there was a bulletin board on which traders posted offers to buy different stocks. When there was a high demand for stocks, the board was full of bulletins, commonly called ‘bulls.’ When there was little demand, the board was ‘bare.’ Therefore, a bull market is when the market is up (lots of buyers), and a bear (bare) market is when the market is down (lots of sellers).”
    • The oddest explanation concerns a 16th-century phrase “Don’t sell the bear’s skin before you’ve killed him,” a more brutal way of saying “Don’t count your chickens before they’ve hatched.” (People were tougher back then.) Well, salesmen called “bearskin jobbers” would sell bearskins to buyers before they actually bought the skins from trappers. The goal would be to sell higher than what they thought the trapper would charge. These short-selling bearskin jobbers thrived in falling markets, earning the title “bear’s market.”

 

• Two weeks ago, China devalued its currency 3.5% against the U.S. dollar. What is currency devaluation?
  • Currency devaluation occurs when a government lowers the value of its money (such as the American dollar or the Chinese renminbi). Currency devaluation is often enacted to combat trade imbalances or protect domestic markets. It has two major impacts:
    • Exports become cheaper, making them more available to the global market.
    • Imports become more expensive, making domestic consumers less likely to buy them.

 

• U.S. stock markets are experiencing a market correction. What is a market correction?
  • A market correction is a fall of 10% from a market’s peak.

 

• Commodities have slumped to a 16-year low. What are commodities?
  • Commodities are raw materials or primary agricultural products: food, metal, oil. The current slump in commodities is due to “markets plagued by oversupply,” according to one Bloomberg expert.

 

• What is premarket trading?
  • Premarket trading refers to big trading deals made outside a market’s official hours of business, usually between 4-9 a.m.. Big banks and investment firms engage in premarket trading, and many investors use premarket activity as an indicator of the market as a whole or individual security (stock). Check out premarket trading news here.

 

TEACHERS’ TOOLKIT

BBC: Get to know your finance jargon

Investopedia: Dictionary and Videos

Investopedia: Bear Market

Defreitas and Minsky: The Real Origin of the Terms Bear Market and Bull Market—Revealed!

CNN: China devalues its currency: What you need to know

The Motley Fool: 6 things you should know about a stock market correction

Bloomberg: Commodities Slump to 16-Year Low on Mining, Oil Stocks

CNN Money: Pre-Market Trading and After-Hours Trading