Are We Experiencing a Dead Cat Bounce?

I saw the phrase in a Yahoo Finance headline, “At Some Point, Stocks Are Due for a Dead-Cat Bounce“, and I have to admit that not only did I have no idea what it meant, I had never heard the phrase before.

So I decided to ask Google Home:

For those of you who would rather read a definition, here’s one from Investopedia:

“A dead cat bounce is a temporary recovery from a prolonged decline or a bear market that is followed by the continuation of the downtrend. A dead cat bounce can also be applied to a small, short-lived recovery in the price of a declining security, such as a stock.”

I still wasn’t quite sure where such a phrase would have come from, but then I kept reading and saw the following:

“The name “dead cat bounce” is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.”

It’s a strange analogy to say the least, and I’m not sure why it’s a cat that’s used in the expression.

According to Wikipedia, the earliest citation of the phrase in the news media dates to December 1985 when the Singaporean and Malaysian stock markets bounced back after a hard fall during the recession of that year. Journalists Horace Brag and Wong Sulong of the Financial Times were quoted as saying the market rise was “what we call a dead cat bounce”.

So I wonder if Brag and Sulong had actually witnessed a real dead cat falling and then noticed that it bounced when it hit the ground. Did they then combine what they had witnessed to their financial reporting? If so, it seems a bit macabre.

Anyway, I certainly hope we’re not in the midst of a dead cat bounce.

I’d prefer that we have a situation where perhaps a cat fell, but since it hasn’t used up its nine lives yet, will be up and about, better than ever.

I’d call it the “nine lives effect”; look for it in Investopedia someday.

 

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