The term “Dead Cat Bounce” describes a situation when the price of a stock or market rebounds even after a large drop, and gives investors the impression that the market has fully recovered. It is frequently employed in the financial sector. The term is a cautionary tale for unwarranted positivity within a general market decline. It implies that temporary gains may hide more severe issues in the market.
Meaning of “Dead Cat Bounce”
The term “dead cat bounce” describes a situation where the price of a falling stock or market rallies briefly before falling again. It is commonly associated with the stock market and refers to a situation where a stock that is in a free-fall bounces back for a short period before returning to the downward trend.
This phenomenon can lead investors to believe that the stock has reached its lowest point and is now on the rise, when in reality it is just a temporary upward spike in a downward trend.
This phrase is usually used in a broader sense to refer to any case where a temporary or superficial improvement is mistaken for a complete change of fortunes. It can be used in the economic depressions, political elections, and can also be used in interpersonal relationships. In each case, the underlying message is the same: The recovery seems to be fake, and the deterioration is expected to persist.
Origin of “Dead Cat Bounce”
The phrase “dead cat bounce” was popularized in the financial markets during the 1980s as a graphic description of a temporary revive in a declining market or stock. The term was first reported to have been used in the financial markets by a trader in the “Financial Times” on the 7th of December in 1985.
The phrase originates from dark humor meaning that even a dead cat would respond to the drop when it falls from a great height, which means that a slight rise in a severely falling market is not a sign of its recovery.
In financial terms, a ‘dead cat bounce’ refers to a temporary rise in the price followed by a further decline in the same direction. This vivid expression captures the notion that not every comeback in a bear market is a sign of a positive change. It has become so popular that it is often used as a verb, for example, the stock dead cat bounced yesterday.
Although it is mainly used in finance, the term ‘dead cat bounce’ employs in the political and sports analysis to describe a situation where there is a slight recovery from a terrible state.
It has been rather memorable and comprehensible because of its graphic imagery, however, it has been subject to some controversy as well. Still, this term is widely used and quite efficient in explaining those recoveries that are not sustainable in various Declining scenarios across financial and non-financial spheres.
Use of “Dead Cat Bounce” in Literature
The phrase “dead cat bounce” is mainly used in the financial and economic context; however, it is partially used in literature to describe the state of false hope.
This phrase has been used by writers to analyze such issues as decadence, despair and the impossibility of hope. The descriptive use of “dead cat bounce” has been illustrated below with a gradual explanation of its relevance in each example.
Example#1
“Boomerang: Travels in the New Third World” by Michael Lewis
“The Icelandic stock market, after losing 90 percent of its value, had actually risen a bit, which some local economists, with dark humor, called a ‘dead cat bounce’—the idea that even a dead cat will bounce if dropped from a great height.”
The work focuses on the consequences of the 2008 financial crisis for countries, including Iceland. “Dead Cat Bounce” is a humorous and bleak term for a very tiny rebound in the stock market of Iceland after a tremendous crash.
In financial markets, a dead cat bounce is a situation where the price of a stock or a market rises slightly after a heavy fall with a view of falling again shortly.
The fact that a dead cat can be used to describe such a recovery shows that it is pointless to attempt it, as the effect will only be temporary and insignificant in the face of the overall trend.
The phrase used by the writer well explains the transient and sensational aspect of the Iceland market during a time of economic crisis.
Example#2
“Liar’s Poker” by Michael Lewis
“It was a classic dead cat bounce, the kind that makes some people think the worst is over and it’s time to buy, only to find themselves sucked down into even greater losses.”
In the “Liar’s Poker”, the writer uses the term “dead cat bounce” to express a temporary rise in a falling market.
This is a deceptive trend which forces the investors to think that the market is recovering, when in real sense it is not, and as a consequence whereof, the investors lose their money in the market.
The phrase is employed in a sarcastic way that looks at some investor’s unrealistic optimism in the existence of deeper problems.
It remains a symbol of deception where things seem to be improving only to worsen. The phrase helps the readers to remember that they should not engage in any activity that brings a short-term gain when they do not understand the broader picture.
Example#3
“The Big Short” by Michael Lewis
“The stock had been in free fall for weeks, but now it was up a few percentage points, which some analysts were calling a ‘dead cat bounce.’ They were cautious, knowing that it could just be a short-term reaction before the inevitable decline continued.”
The author employs the “dead cat bounce” phrase while describing the stock market during the financial crisis of 2007 and 2008. Here, analysts are especially cautious about a slight increase in a stock after it has been consistently falling.
This rise clearly suggests that the bounce may be momentary dead and is not a sign of revival. It focuses on volatility or fluctuations in the stock markets and how, occasionally, small increases in share prices can make investors believe that things are improving when they are actually not.
Example#4
“The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse” by Mohamed A. El-Erian
“The market’s rally, while impressive, felt more like a dead cat bounce than a true recovery. Many investors were reluctant to commit, recognizing that the underlying problems remained unresolved, and the short-term gains could vanish just as quickly.”
In “The Only Game in Town”, Mohamed A. El-Erian describes a short term bounce in the market as a ‘dead cat bounce’, suggesting that the rise in trading activity is merely false hope with no chance of enduring actual recovery.
Though investors know that these disturbing factors are still present, the rise is a bounce back, not a rebound. The phrase is used here in a cautionary sense because while the stock market gains are good and represent the literal bounce of the dead cat, they could disappear as soon as reality sets in.
Use of “Dead Cat Bounce” in Modern Contexts
The phrase “dead cat bounce” is still in circulation today and is frequently used when people are talking about finance, politics, economics and relationships.
Due to intensity of the imagery and expressiveness of the message, this phrase is used to illustrate where a temporary recovery is mistaken for a true turnaround.
In Finance and Economics
The “dead cat bounce” is a well known term in finance and economics that refers to temporary reversals in the stock market or other similar indicators.
This term is commonly used in the market reports and discussions to discourage investors from buying into short term price increases that are not supported by the actual market conditions. .
For example, in a long bear market, a stock market rally may be described by some analysts as a “dead cat bounce” instead of the start of a new uptrend.
This is a significant aspect that underscores the need to focus on long-term trends instead of short-term movements in the market.
In Politics
The term ‘dead cat bounce’ is also used in politics to refer to a temporary increase in the ratings, support of a candidate or a political party.
This may happen after a big event, speech, and the policy announcement. This may happen after a significant event, a speech, or the launch of a new policy where a politician gains some popularity and later loses it as previous problems come back.
For example, a political analyst can refer to a rise in poll numbers for a candidate after a debate as a ‘dead cat bounce’, if it is expected to be a temporary and fleeting phenomenon which is not accompanied by other similar trends.
See also: Damp Squib Examples
In Personal Relationships
In personal relationships, the ‘dead cat bounce’ can be used in a figurative sense to mean that a particular relationship goes through a phase of stability after a phase of crisis and then the relationship deteriorates again.
This may happen for instance when a couple breaks up and decides to get back together but they find out that there is no change.
For example, someone might say, “Our relationship had a dead cat bounce—we got back together for a while, but it didn’t last.” In this case, the phrase shows how the recovery is short term and how the relationship’s downfall is certain.
In Popular Culture
The term dead cat bounce has also extended its presence to the domain of movies, television shows, and songs. It is more likely use in its more figurative sense, where it can refer to situations that appear to be good or improving but are not actually.
For example, in the television dramatization of a financial sector, the characters may utter the phrase when referring to fluctuations in the stock exchange or to lament the instability of one’s position given the high-stakes nature of the profession. For example, in music, the term is used in lyrics to signify issues, such as giving false hope or momentary relapses.
See also: Darby And Joan
In Social Media
The phrase “dead cat bounce” is also used in social media to refer to trends, memes, or social media marketing campaigns that are popular for a short time before dying out. For example, high levels of engagement on the influencer’s social media may be described as ‘a dead cat bounce’ when they are quickly replaced by a lower interaction rate.
It is also often employed in discussions of social and cultural processes and can refer to cases where there is a brief spike of interest or support and then a decline. In these contexts, ‘dead cat bounce’ encapsulates the essence of the transient nature of fame and prominence in the modern society.
