The S&P 500 is in a bull market – or is it? The index has risen more than 20 per cent since bottoming last October, prompting Bank of America strategist Savita Subramanian to declare the bear market “officially over”.
However, while a bear market is commonly defined as a 20 per cent fall, not everyone agrees a 20 per cent gain represents an official bull market. CFRA strategist Sam Stovall points to the extreme volatility of late 2008, when the S&P 500 rebounded more than 20 per cent between November and January 2009 only to soon hit new lows, only bottoming in March.
The rally, says Stovall, was a “blip within a longer-term bear market”. The same example is noted by Prof Jeremy Siegel. Usually noted for his bullish disposition, Siegel cautions that a similarly strong rally occurred during the dot-com bust in 2000. In other words, rallies exceeding 20 per cent occurred in two of the last three bear markets.
Still, the ongoing market strength is encouraging. The aforementioned bear market rallies were brief snapback affairs, but stocks have been gaining for eight months now. Subramanian notes that on average, stocks have gained 19 per cent in the year following a 20 per cent rally from a bottom.
Similarly, the Carson Group’s Ryan Detrick found 13 previous examples where stocks were up 20 per cent from a bear market low; a year later, they were up on all but one occasion. Detrick also found 15 previous instances where the index hit a new 52-week high after a year without one.
Stocks were higher a year later every single time, enjoying especially strong returns. So can we say for sure the bear market is “officially over”? No – but it sure looks that way.
