What it means
The word comes from the way a bull attacks, thrusting its horns upward, in contrast to a bear that swipes downward. In finance the term does two jobs: it describes a person's opinion ("she is bullish on industrial property") and it describes market conditions ("we are three years into a bull market").
A bull market is conventionally defined as a sustained rise of 20% or more in a broad index from its most recent low. That threshold is a market convention rather than a rule written down anywhere, but journalists, fund managers and analysts use it as common shorthand.
Bull markets often run for several years and usually coincide with rising employment and growing corporate profits. For a business audience, the label matters because it changes the cost and availability of money.
In a bull market, valuations are higher, investors are more willing to fund growth, and raising equity costs you less ownership for the same amount of cash. The identical business plan pitched in a bearish period may need to give away twice the equity to raise the same sum.
Being a bull on something specific is a statement about relative value, not blind cheerfulness. A professional who is bullish on a company will normally attach a target price, a time horizon and a reason, such as an expected margin improvement or a new contract.
The casual use of the word carries none of that discipline, which is why it is worth asking a bull what would change their mind. The main nuance is that bullishness is a forecast rather than a fact, and a crowd of bulls can push prices well past what current earnings justify.
Sensible finance teams treat a bull market as a window for raising capital or selling non-core assets, not as evidence that their own operating numbers have improved.
In practice
Real-world examples.
Example
A software company's chief financial officer has been sitting on a plan to raise $8 million for two years. Equity markets have risen 25% from their low and investors are visibly bullish on recurring-revenue businesses, so she brings the fundraising forward by six months to take advantage of the higher valuation.
Example
A commodities trader tells his desk he is "a bull on copper into next year" because mine supply is constrained and grid investment is rising. He backs the view with a target price and a stop level, so the desk knows both what he expects and when he would be proved wrong.
Example
A family-owned engineering firm receives three unsolicited approaches in one quarter. Their adviser explains that private equity buyers are bullish on the sector, which is why offer multiples have moved from four times profit to nearly six, and suggests they at least test the market.
Formula
Calculation
The commonly used test for a bull market is: (current index level - most recent low) / most recent low x 100, with 20% or more taken as confirmation.
Suppose a market index falls to a low of 3,200 points. Six months later it has climbed to 3,840 points. The gain is 3,840 - 3,200 = 640 points, and 640 / 3,200 = 0.20, which is 20%. That meets the conventional threshold, so commentators would call it a bull market.
If instead the index had only reached 3,650 points, the gain would be 3,650 - 3,200 = 450 points, and 450 / 3,200 = 0.1406, which is 14.1%. That is a recovery, but under the usual convention it is not yet a bull market.Case study
Seen in the real world.
The following is an illustrative, fictional example. Harborlight Instruments is a made-up maker of laboratory sensors that spent three years quietly profitable and short of cash for expansion. When its listed peers rose 30% from their lows and analysts turned openly bullish on laboratory equipment, Harborlight's board decided the window had opened.
The company raised $12 million by selling 15% of its equity, whereas an internal model built during the previous downturn had assumed it would need to sell around 30% for the same money. The finance director was careful to describe this to staff as a market condition rather than a verdict on performance, because revenue had grown only modestly during the same period.
Eighteen months later sentiment cooled and comparable companies traded a third lower. Harborlight had already spent the money on a second production line, and the fictional lesson its board drew was simple: bullish markets are best used to fund real plans that were already worth doing.
Watch out
Common mistakes.
- Treating "bullish" as a fact about a company rather than an opinion about its future price, and skipping the reasoning behind it.
- Assuming a bull market means every share is rising, when in practice leadership is often concentrated in a handful of sectors.
- Confusing a bull run in valuations with an improvement in your own trading performance, and then setting budgets on that mistaken basis.
Questions
People also ask.
What is the difference between a bull and a bear?
A bull expects prices to rise and generally buys, while a bear expects prices to fall and may sell or short the asset.
Does a bull market guarantee my business will grow?
No, it reflects investor sentiment and the price of capital rather than demand in your particular market.
How long do bull markets usually last?
There is no fixed length, though historically they tend to run considerably longer than the sharp declines that end them.
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