What This Long Bull Market Can Mean for Your Business

As a historically long bull market continues, many are wondering how it will affect their companies. Discover how you can make the most of the market and how to plan for inevitable market shifts.
September 05, 2018

The current bull market became the longest running one in history recently. Beginning in March 2009, it's now considered the longest on record, by some estimates, which has an effect on business.

"Bull markets are great for business, because such market conditions typically result in a growing economy," says Bruce Tynan, a financial planner with Decker Retirement Planning.

"A bull market, which features a sustained period of rising share prices, generally means that unemployment is low, wage growth is up and consumption is increasing," says Tynan. "The bull market effect on business is what companies require to drive revenue growth and earnings."

Bull Market's Effect on Business

As an indicator of a healthy economy, a bull market positively affects businesses.

Each business is different, but in times of prosperity, it's usually best to invest in growth and set up reserves.

—Alex Shvarts, chief technology officer, Fundkite

"A rise in stock prices creates more wealth and spurs more business activity as more money is injected into the economy," says Alex Shvarts, chief technology officer at FundKite, a small business lender. "That wealth would likely trickle down to businesses, as well." 

"Traditionally, bull markets loosen the purse strings of businesses and lenders," says Edwin Handschuh, CEO and co-founder of 1Konto, a cryptocurrency exchange platform. “This is due to increased optimism and rising net worth and discretionary spending. As a result, lenders feel comfortable providing credit to grow business and for product development."

According to Handschuh, the current bull market's effect on business has been a bit different than usual, due to corporations opting to increase dividends and buy back stock, as opposed to raising employee salaries.

"Larger companies have chosen this route, partially because of the historically low interest rate environment," says Handschuh. "This has unfortunately led to small businesses finding it somewhat difficult to access capital. Over the last 12 to 18 months, the credit restrictions have loosened as rates began to rise, though, which should fuel growth in the next year."

How Bear Markets Affect Business

The opposite of a bull market is a bear market, when stocks are falling.

A bull market generally turns into a bear market when stocks drop more than 20 percent in value. Though the market has been volatile over the last nine years, such a drop hasn't occurred since 2009.

"A bear market would adversely affect businesses in general," says Shvarts. "If we believe the market is a true forecaster of economic growth, then we have to believe a recession is soon to follow. Historically we have seen bear markets followed by recessions, notably in 1929, 1973 and 2008, where businesses were deeply affected and recovery was a slow process."

What goes up eventually goes down, which means a bear market is inevitable, agrees Tynan.

"Business owners would be wise to be aware of the fact that this current market expansion will not last forever," he says.

"Bear markets bring what is known as a credit contraction for many investors," adds Tynan. "A credit contraction is when your net worth drops dramatically in a short amount of time. This will result in a decrease in the overall demand for all goods and services. This means less consumption and less revenue potential for business. As businesses make less money, you see an increase in unemployment and wage stagnation."

How to Make the Most of the Bull Market

While stock market conditions persist in the current vein, business owners are advised to take advantage of the positive bull market effect on business.

"Each business is different, but in times of prosperity, it's usually best to invest in growth and set up reserves," says Shvarts. "Business owners who have already operated through recessions and economic downfalls know the importance of capitalizing on every opportunity and increasing future revenue flow outlets to help them coast through the next market dip."

"Nothing goes up forever," adds Handschuh. "When the market and economy falter, it's best to have a contingency plan so you aren't caught off guard."

Tynan agrees.

"For now, there is ample evidence that supports the argument of a continuous bull market effect on business. That being said, I prefer to hope for the best and then plan for the worst. In my opinion, a little bit of caution is always a good thing, regardless of what you're forecasting."

Here are a few ways to take advantage of the existing bull market and prepare for an eventual bear market.

  • Go public. "A bull market is the ideal time to launch an IPO, since your stock price should follow the favorable upmarket trend," says Stacy Caprio, founder of Accelerated Growth Marketing, a digital marketing company. "If you foresee a bear market, on the other hand, it may be wise to hold off going public until the market starts to rise again."
  • Avoid overextending. "It would be prudent to plan for a drop in business in the not-to-distant future," says Tynan. "This means not overusing credit, controlling cash flow and putting away sufficient cash in savings."
  • Be conservative about hiring. "Use prudence when adding to your employee roster," suggests Tynan. "Only hire when you definitely need new employees, and make sure to carefully vet them."
  • Secure backup funding now. "Ensure that your important projects continue to be properly funded," suggests Handschuh. "Opening a line of credit now while the market and optimism are high could serve as a safety net should there be a downturn in the economy."

Read more articles on planning for growth.

Photo: Getty Images

The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.