Ever wonder why bulls and bears are used to describe the state of the stock market? Here are the meanings of some common investment terms.
Bull Market vs. Bear Market
Many believe that the use of "bull" and "bear" to describe anything traded - stocks, bonds, currencies and commodities - comes from the way the animals attack their foes. A bull thrusts its horns up into the air while a bear swipes its paws downward. These actions are metaphors for the movement of the financial markets. If the market is moving up, it's a bull market. If the trend is down, it's a bear market.
Specifically, when investment prices rise faster than their historical average over a prolonged period of time, the market is deemed "bullish." Bull markets are characterized by optimism, investor confidence and the expectation that strong performance will continue.
In contrast, a bear market is marked by widespread pessimism and lack of investor confidence, causing a decline in securities trading for an extended period of time. The greatest bear market in U.S. history occurred during the Great Depression in the 1930s when the market lost more than 89 percent of its value.
If the period of falling or rising stock prices is short and immediately follows a period where stock prices moved in the opposite direction, it is not categorized as a bull or a bear market. Instead, this period is considered a market correction.
Wall Street
Wall Street is both the name of a street in New York's lower Manhattan and the name given to the financial district which surrounds it. Regarded as the center of American finance, Wall Street is home to the New York Stock Exchange, many major banks and financial investment firms.
Wall Street's name was derived from an actual wall that was built during the 17th Century by settlers who wanted to protect the area from invaders.
Gross Domestic Product (GDP)
Think of the gross domestic product (GDP) as the size of the economy. The GDP is one the primary indicators used to gauge the health of the country's economy. It represents the dollar value of all goods and services produced by labor and property located in the United States, regardless of the producer's nationality.
Most often, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3 percent, then the economy has grown by 3 percent over the previous year. According to data from the Bureau of Economic Analysis, GDP can fluctuate widely from year-to-year. For example, its all-time annual high was 27.2 percent from 1941 to 1942. Its record annual low was -23.2 percent from 1931 to 1932.