Many headlines boasted last week that the Nasdaq Composite had officially entered a new bull market, which is technically true \u2013 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.<\/p>\n\n\n\n
This sharp recovery has some pundits declaring the end of the bear market, which I think is a bit premature. Bear markets historically last about 10 months, and they are also notorious for staging rallies that investors often mistake for the start of a new bull. These are often referred to as \u201cdead cat bounces,\u201d and are fairly common in bear markets. In the 2000 \u2013 2002 downturn, for example, there were four instances when the S&P 500 recovered by about 20%, only to continue making new lows until hitting a bottom in late 2002.1<\/sup><\/p>\n\n\n\n Since the 2000-2002 bear market, roughly half of the S&P 500\u2019s 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.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n The thinking goes that falling inflation means less pressure on the Federal Reserve to raise rates as aggressively as they have been, which would be a tailwind for markets. This outlook can be confirmed in the futures markets, which continue to show traders wagering the fed funds rate will peak by next spring, and also that the Federal Reserve will start cutting rates sometime later next year. These markets are pegging the Fed\u2019s target rate at 3.2% by the end of 2023, which is lower than what Fed officials projected in their June minutes.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n In my view, it is hazardous to try and guess the Fed\u2019s 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 \u2013 like the war in early 2022 \u2013 may come along and disrupt supply chains and commodity markets again. That\u2019s impossible to know, but it could be influential in the Fed\u2019s decision-making.<\/p>\n\n\n\n Bottom Line for Investors<\/strong><\/p>\n\n\n\n Most readers and investors have seen the statistics about long-term returns in the stock market, which have been about +10% annualized over the past century. That is a highly desirable return for most people, and the upshot of investing in the stock market is that bear markets are baked into these annualized returns. Stocks lose an average of 36% in bear markets, but they gain an average of 114% in bull markets. Bull markets also last much longer, on average.<\/p>\n\n\n\n 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\u2019re 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\u2019s biggest up days, which history tells us happens either during a bear market or very early in the new bull market\u2014one of which describes where we are today.<\/p>\n","protected":false},"excerpt":{"rendered":" While we have seen the Nasdaq bounce +20% since June, previous bear markets have staged rallies then dropped again to new lows. <\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[],"class_list":["post-9260","post","type-post","status-publish","format-standard","hentry","category-financial-professionals","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9260","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=9260"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9260\/revisions"}],"predecessor-version":[{"id":9262,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9260\/revisions\/9262"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=9260"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=9260"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=9260"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}