What is a bull market…and are we in one?
THE FTSE 100 responded positively yesterday to the news that the Conservative Party leadership contest had been shortened from nine weeks to about nine working days, with the lift taking the market into bull market territory.
But what is a bull market – and are we really in one?
The term is used as a label for when the FTSE 100 has risen 20% in value over a given period of time. The negative version – of a 20% or greater fall – is described as a bear market.
The familiar terms bull and bear market originate from the way these two animals attack their victims. the bull will drive its horns up into the air, whereas the bear will swipe its paws downwards to injure its prey.
Although the FTSE 100 has risen more than 20% – the increase, from a low of 5,534 in February to last night’s close of 6,683, stands at 20.8% – it has not been a textbook rise into a bull market.
Usually the rising asset prices are part of a reasonably steady upwards trend that is fuelled by investors’ optimism, confidence and expectations.
This time though there has been quite a rollercoaster ride, with two big dips in June, including the panic sell-off after the Brexit result came through.
Mike van Dulken of Accendo Markets told the Telegraph: “The FTSE 100 is up 20% from this year’s lows on 11 Feb, but it’s not the bull market you think it is. Far from being a nice steady trend higher, investors have had to weather a rally of 17% through end-April followed by an 11% decline to Brexit-day lows before rebounding by an impressive 16% in just over two weeks. An eventful round trip to say the least.
“Furthermore it’s not exactly been a typical risk-on rally with the usual suspects of banks, financials, miners and housebuilders all lest out in the cold suffering from Brexit uncertainty while a rush to safe-haven, non-cyclical and high-yielding names sees the likes of pharma, precious metals, utilities, Tobacco, Beverages, Telcos, Utilities, Food, Consumer staples all pushing on, in many cases to fresh all-time highs.”
Also the upward progress of the FTSE 100 has not been matched by an equal rise in the value of the next 250 biggest companies on the market, a group which is much more responsive to domestic travails. Since February 11, the FTSE 250 has risen at just half the rate of its big brother, adding 10.1% at last night’s close of 16,706.
