In financial markets, animals play a highly symbolic role, with each representing different market trends and behaviours. Two of the most iconic animals are the bull and the bear; however, the markets are home to a much broader range of creatures.
The bull symbolises strength and resilience, with a tendency to attack by thrusting its horns upwards, making it the perfect symbol for a rising market or “bull market”. This scenario is characterised by a prolonged period of rising asset prices, especially stocks, driven mostly by investor confidence, an expanding economy and growing corporate profits. On the flip side, we have a “bear market” representing a declining market. This animal is known for its defensive nature and its attack style, swiping downwards with its claws. Bear markets are characterised by a consistent fall in financial asset prices (typically greater than 20%), a rise in volatility and widespread investor pessimism.
Besides the bull and the bear, other animal inhabitants of Wall Street include wolves and sheep. Wolves represent aggressive, cunning and opportunistic investors. They tend to have deep market knowledge and make independent, sometimes risky, decisions in pursuit of quick profits. On the other hand, sheep “follow the herd”. They are investors that go along with the current direction and trends of the market. Other animals we might find here include pigs and chickens. Pigs represent greedy investors who take great risks to maximise profits in the very short-term, with no clear strategy or market knowledge. This can lead to major losses. Meanwhile, chickens symbolise extremely cautious investors.
We have also seen the emergence of other animals in recent years in relation to monetary policy. This is where hawks and doves reside. The former advocate for more restrictive monetary policies, such as interest rate hikes to tame inflation, even if that may have negative consequences for economic growth. Doves on the other hand prefer a more expansionary monetary policy to stimulate the economy, even if this means slightly higher inflation.
There are also more exotic animals out there, such as the black swan. This expression is used to describe an unexpected event that causes a spike in volatility, triggering investor panic and sharp falls in risk assets. Lesser-known animals include grey rhinos and elephants in the room. These two metaphors are used to describe events that occur on the financial markets. In both cases, there is an attitude of neglect toward risk, either because it is uncomfortable to address (the elephant) or because its immediate impact is underestimated (the rhino). An example of a grey rhino could be the 2008 financial crisis, since the risks of sub-prime mortgages were known in the industry, but measures were not taken in time.
Lastly, we also have expressions that use animals to describe how the market is performing, such as “dead cat bounce”, or to define investment strategies, like the “dogs of the Dow”. A dead cat bounce refers to an event where, after a significant drop in the price of an asset, there is a brief and temporary increase, followed by another decline. This upward movement is short-lived and does not signal a sustainable recovery, but rather a pause or interruption in the downward trend. Finally, investing in the dogs of the Dow means buying the ten stocks with the highest dividend yield from companies in the Dow Jones Industrial Average index.
As we have seen, the presence of animals on Wall Street helps us to describe market situations and strategies, as well as to reflect human emotions in a way that can be easily understood.
Diari d’Andorra 09.10.2024