As of June 8th, the S&P 500 has rallied more than 20% off the market lows made in October 2022. As a result, there is a refreshed debate on whether the bear market is over and a new bull market has started. The fact that investors are looking at the possibility of a new bull market is refreshing after the yearlong discussions about high inflation and the impeding recession.
Generally, the threshold for determining a bear market is a 20% decline from a recent high, which is what the markets experienced in 2022. On the flip side the threshold for a bull market is a 20% increase from a recent low, which occurred on June 8th. Some investment professionals incorporate a length of time the market needs to remain above the 20% increase to be consider a bull market, but at Gradient Investments the label of a bull or bear market doesn’t change our investment process.
If the bear market of 2022 has ended, the length of the latest bear market would be 9.2 months (shown below in the blue circle). This is shorter than the average bear market length of 10.9 months going back to 1942. Not only would this bear market be shorter than average bear market, but it would also be less severe with a max loss of 25.4% whereas the average max bear market decline has been 31.7%.
The chart below reflects performance of the S&P 500 over different timeframes after first achieving bull market status. The performance for the next year (shaded yellow column) after a bull market is achieved has increased, on average, an additional 16% with the median performance advancing 18% (see chart below). If we use history as a guide, the market could have a tailwind for the next year even after the 20% move off the lows.
Historical market performance doesn’t dictate future market performance, but Investors use historical data as a guide for understanding scenarios for an unknown future. This is especially true for events like recessions, elections, and bull or bear markets.
The strong advance in the S&P 500 since last fall has surprised many and it is possible that we are on the cusp of a new bull market. However, whether we are in a bull or bear market our investment process doesn’t change. At Gradient Investments, we believe in analyzing market factors such as corporate earnings, economic activity, and employment trends to give us insight on the future direction of the market, and whether the current market is called a bear or bull it is nothing more than a label, but we welcome the recent direction of the market.