Where Did This ‘Bull Market’ Come From, Anyway?

Everybody talks about bull and bear markets, especially the current one, often called the longest bull market in history at just under 3,800 days. But nobody seems to agree on an exact definition, or knows where the prevailing ones originated, including many investment professionals.

Analysts often say that a bull market is defined by a 20% rise from a market index’s most recent lowest point; a bear market, a 20% decline from its latest high.

Variations on that are countless—and endlessly confusing. Only by looking back at the history of these terms can you can get a better sense of what they mean, why they matter and how you should factor them into your thinking.

According to Anatoly Liberman, a linguist at the University of Minnesota, the use of “bull” and “bear” to refer to financial optimists and pessimists, respectively, originated in Britain in the early 18th century.

“Bull” evoked the bellowing of an eager buyer. “Bear” appears to have come from an early proverbial expression, “to sell the bear’s skin before one has caught the bear”—an apt metaphor for a short sale, in which a trader sells borrowed shares in hopes of buying them back at a lower price.

The terms “bull market” and “bear market,” however, didn’t arise until the 1850s, says lexicographer Barry Popik. Even then, they often referred to only a single day’s action.

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“The market was feverish this morning, with slight advances in some securities and a falling off in others,” reported the New York Herald on Oct. 28, 1855. “It would, undoubtedly, have been a bull market but for the report…of two or three failures.”

As late as 1874, when Matthew Hale Smith published his chronicle “Bulls and Bears of New York,” the term “bull market” still looked strange to readers. “They never buy on what is called a Bull market,” Smith wrote about leading speculators, “but always when stocks are low.”

For decades, bull and bear markets referred not to long-term moves in the stock market as a whole, but to ephemeral price action in a single asset.

“The bull market in wheat Saturday lasted about an hour,” reported The Wall Street Journal on May 15, 1899.

“I couldn’t stem the bull market” in one day’s trading of an Iowa railroad stock, said a character in Edward Everett Rose’s 1910 novel, “Father Kelly of the Rosary.”

The very first issue of the Journal, on July 8, 1889, reported: “The bull market of 1885 began July 2,” with the average price of 12 stocks (including Pacific Mail Steamship and Western Union) at 61.49, and peaked May 18, 1887 at 93.27. That was nearly a 52% gain.

But the Journal didn’t define a bull market, and many decades would pass before it did.

Charles Henry Dow, co-founder of the Journal, wrote—not very helpfully—in 1902: “It is a bull period as long as the average of one high point exceeds that of previous high points. It is a bear period when the low point becomes lower than the previous low points.”

Even during the roaring 1920s, the Journal rarely used the term “bull market.”

In December 1949, the Magazine of Wall Street wrote: “It is simply not possible to arrive at a precise definition of so variable a thing as a bull market or bear market.” Settling on “a considerable rise in stock prices over a considerable period of time,” the magazine cited the action in the Dow between May 1947 and June 1948—an 18% gain—as an example of a bull market.

The 20% threshold for bull and bear markets began to take hold only “in the latter 1950s and early 1960s,” said John Prestbo, former markets editor at the Journal. “It became the seed around which consensus formed, helped partly by the financial press [including Dow Jones, the Journal’s parent] adopting it as a simplistic—and brief—definition.”

An article in the New York Times on July 23, 1962, pegged May 28 of that year as the beginning of a bear market. That was the day the S&P 500 was first down 20% from its high in 1961, according to Birinyi Associates, a research firm in Westport, Conn.

The 20% threshold took a long time to gain traction, however.

In January 1967, as the Dow approached a 14% gain from its trough the previous October, the Journal said many analysts were already “pronouncing the words ‘bull market’ again for the first time in a long while.”

On Sept. 13, 1970, with stocks already up 22% off their lows that spring, the Times still thought it was too soon to declare a bull market.

Only after the epic performance of the 1980s and 1990s, when stocks delivered roughly 18% average annual returns, did the definitions with a 20% threshold take hold for good.

Where does all this leave investors?

First, realize how arbitrary the terms “bull market” and “bear market” are. No one knows why the definitions don’t include a minimum length of time. Or why they’re usually based on closing prices instead of intraday highs and lows. Or who came up with the 20% threshold and why it wasn’t 25% or 30% or 41.2879%. (Defining a “correction” as a 10% decline is equally arbitrary.)

Consider, too, that the terms can create a self-fulfilling prophecy. From Sept. 20 through Dec. 24, 2018, the S&P 500 declined 19.78% based on closing prices, narrowly missing the common definition of a bear market. (Using intraday pricing, the S&P did decline 20.21% from Sept. 21 through Dec. 26.)

Had stocks closed a mere 0.22% lower last Christmas Eve, headlines—including in the Journal—would have read something like STOCKS ENTER BEAR-MARKET TERRITORY.

Many more investors and financial advisers might have sold stocks in response, presumably deepening the decline. Instead, the 19.78% tumble enabled the market to pause without panicking and, ultimately, to resume its rise in 2019.

Investors always want more precision than the collective mood swings of markets tend to offer. In this case, the fact that the decline was just shy of 20% appears to have given investors the confidence that the market hadn’t entered bear territory—and changed their behavior.

The more you know about financial history, the less surprised you should be by how bull and bear markets unfold.

Write to Jason Zweig at intelligentinvestor@wsj.com

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