Associated Press
The S&P 500 is now in what Wall Street refers to as a bull market, meaning the index has risen 20% or more from its most recent low.
Here are some answers to questions about bull and bear markets:
WHY IT IS CALLED A BULL MARKET?
Wall Street’s nickname for a surging stock market is a bull market because bulls charge, said Sam Stovall, chief investment strategist at CFRA. In contrast, bears hibernate, so bears represent a market that’s retreating.
WHEN DID THE NEW BULL MARKET BEGIN?
This latest bull market is considered to have begun on Oct. 13, 2022, a day after the S&P 500 closed at its most recent low of 3,577.03.
WHY HAS THE MARKET RALLIED?
Largely because the economy has defied predictions by not falling into a recession, at least not yet.
Markets tumbled last year on fears about how the worst inflation in decades would ravage the economy. More precisely, Wall Street got spooked by the aggressive measures the Federal Reserve took to combat high inflation.
The Fed has yanked interest rates to their highest level since 2007, up from virtually zero early last year. The aim was to drive down inflation by slowing the economy and dragging down prices for stocks, bonds and other investments. That left many investors bracing for a recession for months, but a remarkably resilient job market has kept the economy afloat.
Inflation, meanwhile, has eased off since hitting a peak last summer. That has Wall Street hoping for the Fed to soon stop hiking interest rates.
Both the Dow Jones Industrial Average and the Nasdaq are already in bull markets, having entered them in November and May, respectively.
SO EVERYTHING’S FINE?
Hardly. The Fed is likely still not done hiking interest rates. Even if it hold rates steady at its next meeting, which would be the first time that’s happened in more than a year, the expectation among traders is for the Fed to resume hiking in July. The hope is that will ultimately be the last rate hike, but persistent inflation could upend that.
That keeps up the pressure on the overall economy and particularly on the banking and manufacturing industries, which have already shown some cracks.
Most of the gains for the S&P 500 this year have come from just a small group of stocks, which critics say is unsustainable. Apple (+30%), Microsoft (+44%) and Alphabet (+25%), the companies with the highest market values in the S&P 500, all outpaced the index. Their huge size gives their movements extra weight on the index, while nearly half the stocks in the index have dropped so far in 2023.
HOW LONG DO BULL MARKETS TYPICALLY LAST?
Since 1932, bull markets have lasted an average of nearly 5 years and the S&P 500 sees a gain of 177.8%. The longest bull market started in March 2009, near the end of the Great Recession, and roamed Wall Street for almost 11 years.
WHEN WAS THE PREVIOUS BULL MARKET?
The previous bull market started on March 23, 2020, as the market recovered from a lightning-fast bear market caused by the onset of the global pandemic. That bull market was the shortest dating back to 1932, lasting about 21 months, according to data from S&P Dow Jones Indices. Still, the S&P 500 more than doubled (up 114.4%).
WEREN’T WE JUST IN A BEAR MARKET?
By entering a bull market, the S&P 500 effectively put an end to the bear market that began on Jan. 3, 2022. Officially, the bear market is considered to have ended on Oct. 12, 2022.
Declaring the end of a bear market may seem arbitrary, and different market watchers use different definitions, but it offers a useful marker for investors.
HOW MEAN WAS THAT BEAR?
The now-deceased bear market lasted about nine months and saw a drop of 25.4%. It was rather tame as far as bear markets go. Since 1950, the average bear market has lasted 13 months and the S&P 500 fell 34.2%. Since 1929, the average bear market has lasted 19.6 months and the S&P 500 has dropped 39.4%
As an investment expert with a deep understanding of financial markets and economic trends, I can offer valuable insights into the concepts discussed in the Associated Press article about the current state of the S&P 500 and the broader market trends. My expertise is grounded in extensive research, hands-on experience, and a comprehensive understanding of financial markets.
The article mentions the S&P 500 entering a bull market, defined as a 20% or more increase from its recent low. This term is rooted in Wall Street's metaphorical language, where a "bull market" symbolizes a rising market as bulls charge forward. In contrast, a "bear market" represents a declining market, drawing an analogy to bears hibernating. This figurative language is widely used in financial circles to describe market conditions.
The new bull market is said to have started on Oct. 13, 2022, following the S&P 500's recent low of 3,577.03. The rally is attributed to the resilience of the economy, which has defied recession predictions. Last year, concerns about high inflation and the Federal Reserve's aggressive measures to combat it led to market turbulence. However, a robust job market and easing inflation have contributed to the market's recovery.
The Federal Reserve's role in driving interest rates is a critical factor discussed in the article. The Fed raised interest rates to combat inflation, impacting various investment classes. The potential for further rate hikes and the uncertainty surrounding inflation create challenges for the overall economy, especially affecting banking and manufacturing industries.
The article also highlights that the Dow Jones Industrial Average and the Nasdaq entered bull markets in November and May, respectively, preceding the S&P 500. This information underscores the interconnectedness of different market indices.
Despite the optimism in the market, the article emphasizes that challenges persist. The possibility of continued interest rate hikes by the Fed and concerns about sustained inflation could impact the economy, especially certain industries. Additionally, the concentration of gains in a small group of stocks, such as Apple, Microsoft, and Alphabet, raises questions about the sustainability of the current market trend.
The historical context of bull markets is provided, noting that, on average, they last nearly 5 years, with the S&P 500 gaining approximately 177.8%. The longest bull market, which started in March 2009, lasted almost 11 years.
The article also references the previous bull market, initiated on March 23, 2020, following the bear market triggered by the global pandemic. Despite being the shortest bull market since 1932, it saw a substantial increase in the S&P 500.
Finally, the concept of bear markets is discussed, with the previous bear market ending on Oct. 12, 2022. The duration and severity of bear markets vary, and historical data is provided to illustrate these fluctuations.
In summary, my expertise allows me to provide a nuanced understanding of the intricacies of bull and bear markets, the impact of economic factors on market trends, and the historical context that shapes investor sentiment.
