Has the Bear Market Officially Ended?
Many headlines boasted last week that the Nasdaq Composite had officially entered a new bull market, which is technically true – over the course of the last several weeks, the tech-heavy Nasdaq bounced over +20% from its mid-June low, as investors poured back into some of the hardest hit shares in the first half of the year.
This sharp recovery has some pundits declaring the end of the bear market, which I think is a bit premature. Bear markets historically last
Since the 2000-2002 bear market, roughly half of the S&P 500’s best days have taken place during a bear, and about one-third of the best days happened at the very beginning of a new bull market. And anytime the market is up or down more than 3%, it is almost always during a bear market. Big moves happen in choppy markets, and they usually occur at a time when no one truly knows whether we are actually in a bull or a bear market, which can only be determined with the benefit of hindsight. Again, I think it is too early to declare the bear market officially over.
One of the key drivers behind this recent rally appears to be the July inflation print, which showed the consumer-price index rising 8.5% year-over-year, down from 9.1% in June. The month-over-month inflation reading for July was also flat, which signaled to some market participants that inflation may have peaked
The thinking goes that falling inflation means less pressure on the Federal Reserve to raise rates
But these forecasts in the futures markets have been wrong before, and recently. This time last year, the prevailing bets in derivatives markets pegged inflation at 3.3% from summer 2021 to summer 2022, which turned out to be way off the mark. Prices rose nearly three times as fast as the forecast called for.
In my view, it is hazardous to try and guess the Fed’s course of policymaking over the next 12 months, which it appears that some of the current bulls are doing. While I agree inflation pressures are likely to abate in the coming months and quarters, there is no telling if some extraneous factor – like the war in early 2022 – may come along and disrupt supply chains and commodity markets again. That’s impossible to know, but it could be influential in the Fed’s decision-making.
Bottom Line for Investors
Most readers and investors have seen the statistics about long-term returns in the stock market
I realize it can be fairly unsatisfying to say the bear market may or may not be officially over, and that investors need to take the bad with the good. But I think we’re in a period now where the key goal should not necessarily be to predict correctly when the bear will end and the bull will begin. The goal here to ensure participation in the market
1 Wall Street Journal. August 14, 2022. https://www.wsj.com/articles/market-rebound-draws-wary-eye-from-some-investors-11660469378?mod=djem10point
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