Speaking Wall Street Babble
“Speaking Wall Street” by Conner W. Mays – Like any new environment, activity, sport, hobby, job, etc… learning to speak the language is one of the most important parts of really understanding what is going on around you. Every environment has its own language that the natives use and although the words are used in other places they can mean very different things.
For example, I played American Football from the time I was nine years old through my senior year in college and I can explain exactly what ‘offside” means. However, if you put me in a Soccer stadium, or at a bar watching The FIFA World Cup, I have absolutely zero chance of telling you what “offside” means (seriously, I think it is the most confusing rule in sports.) The important thing here is that I know I could understand the Soccer offside rule if I wanted to and I guarantee that you can understand financial markets if you really want to and my goal is make sure that becomes a reality.
Wall Street and financial markets as a whole might have one of the most diverse, specialized dialects of any industry. For this reason, many people think that they will never be able to understand the market, I promise you that anyone can learn the language and be on their way to truly understanding what is going on in the market. My focus here is going to be the overarching terms and lingo that you may hear on CNBC, The Wall Street Journal or Bloomberg.
This topic will be covered as a series – if you have a term or topic you have heard and want to understand let us know and we will do my best to explain it.
Speaking Wall Street
The Animal Spirits
The Bulls & The Bears
Being a Bull or “Bullish” means that you are expecting a stock, sector or the market as a whole to increase in value. Think of a Bull pushing prices up with its horns in the same way a bull may toss a person over a fence during the Running of the Bulls.
Being a “Bear” or “Bearish” means that you are expecting a stock, sector, or the market as a whole to decrease in value. Think of a Bear weighing down the market or pushing it down as it goes in for the kill.
These two terms are used most commonly to quickly tell someone how you feel about the value of something. Someone might ask me, “Hey Conner, what do you think of MobileEye (NASDAQ:MBLY)?” My response, if I think that the price is going to increase, would be “I’m Bullish on the stock!” If I think the price is going to down I could say, “Man, I’m a Bear on MBLY.” The same idea applies to someone referring to a Bull Market, the market has been in a continued upward trend, if someone says we are in a Bear Market, they simply mean prices have been going down, and they expect the downward trend to continue.
The Federal Reserve “The Fed”
If you aren’t already aware, The Federal Reserve is the Central Bank of the United States, and is currently chaired by Janet Yellen. The Fed conducts monetary policy with a goal of keeping the financial environment in the United States stable and healthy, through a number of activities.
The Fed is referred to as “Dovish” when their policies are relatively passive and are aimed at maintaining the current environment in a more accommodative fashion.
When The Fed is referred to as “Hawkish” when their policies are more aggressive and are aimed at changing the current financial environment before it becomes dangerous.
I will discuss the Fed’s mandate and the tools they use to conduct monetary policy in a later post – for today – just understand that a “Dovish” Fed is not trying to change the current environment and a “Hawkish” fed is trying to change the current environment. Just remember that if you hear someone saying “Yellen sounded awfully hawkish on the news today” the speaker believes Janet Yellen is thinking of acting more aggressively in financial markets.
There are a huge number of individual public companies that trade on the stock market. For this reason, Charles Dow invented the Dow Jones Industrial Average (DJIA) or “The Dow” in 1885. The Dow is a basket of 30 stocks considered to be 30 of the most stable, arguably important, companies on the market referred to as “Blue Chip Stocks.” Another common stock index is the S&P 500, which is a group of 500 stocks that are meant to be a more broad measure of the overall market vs. The Dow, which is a measure of only 30 stocks.
So why do they exist? As I mentioned earlier, there are a huge number of stocks on the market, indices were invented to serve as a proxy or an indicator for overall market activity. The idea is that if these indices are going up, the rest of the market probably is too. There are a ton of different indices that have a goal of tracking different parts of the market, but if you understand they are a proxy used to track activity you can understand them all.