NASDAQ-Adv: 2,550 Dec: 2,046 NYSE-Adv: 2,507 Dec: 1,632 (Source: Nasdaq)
The rebound in the U.S. stock market in recent weeks has analysts and investors wondering if the deep downturn of 2022 is over, but how to spot an expiring bear market or a new bull market isn’t something everyone is on. on Wall Street agrees.
Stocks rebounded on better-than-expected corporate earnings and bets on the worst of the inflation spike may be off. The roughly 0.6% drop in the Nasdaq index (.IXIC) on Thursday left the tech index up 20% from the recent low on June 16, while the S&P 500 (.SPX) also rebounded in recent weeks, now up 15% from its recent low in June.
The recent gains led analysts at Bespoke Investment Group to say on Thursday morning that the Nasdaq had exited its recent bear market, although the index remains down about 21% from its record close last November. with trillions of dollars in market value still lost. .
On Wall Street, the terms “bull” and “bear” markets are often used to characterize major upward or downward trends in asset prices.
Both indices are widely considered to have been in bear markets in 2022, but not all analysts define bull or bear markets the same way, and many investors use the terms loosely.
“We could write for hours about the semantics of bull and bear markets,” Bespoke wrote in its research note, saying it was now confirmed that a new bull market started on June 16.
The Merriam-Webster dictionary defines a bull market simply as “a market in which securities or commodities rise persistently.”
Some investors more accurately define a bear market as a decline of at least 20% in a stock or index from its previous high, with the peak defining the start of the bear market, which is only recognized after blow after at least 20% decline.
Similarly, some define a bull market as a 20% rise from a previous low, and by this metric, used by Bespoke, the Nasdaq could now be considered to have started a new bull market.
The Securities and Exchange Commission states on its website that “generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.”
The S&P Dow Jones Indices, which administer the S&P 500 and the Dow Jones Industrial Average (.DJI), have an even more nuanced definition of a bull market.
A decline of 20% or more from a high, followed by a 20% gain from that lower level, would leave an index still below its previous high, a situation that Howard Silverblatt, principal analyst at the S&P Dow Jones Indices, described as a “bullish rally in a bear market”.
Analysts caution against relying too heavily on backward-looking definitions of market cycles that do little to capture current sentiment or predict where stocks will go in the future.
Factors such as the speed of markets rising or falling and the movement of average stocks help determine whether investors view a major move as a turning point in sentiment or a short-term interruption of an existing bull or bear market.
This is because investors can only be sure that they are in a new bull market once a new high has been reached, and at that point the previous low would mark the end of the bear market and the beginning of the new bull market, according to S&P. Dow Jones indices.
For example, during the bear market caused by the 2008 financial crisis, the S&P 500 (.SPX) rebounded more than 20% from a November 2008 low, raising hopes that the rout in stocks was over. But the S&P 500 fell another 28% to even lower lows in March 2009.
It wasn’t until an all-time high was reached in March 2013 that investors could say with certainty that a new bull market had been born four years earlier.
“We retroactively go back and say, ‘OK, when did the market bottom? ‘” Silverblatt said. “That’s when the bear would stop and the bull would start.”
Source: Reuters (reporting by Noel Randewich, additional reporting by Chuck Mikolajczak; editing by Megan Davies and Lisa Shumaker)
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