The Bear Market is Dead, Long Live the Bull!

There is something arbitrary and comforting about the anointment of bull and bear markets.  Focusing on a snapshot in time, where a 20 percent increase or decrease in market indexes occurs, can’t possibly tell us the whole story about the economy and its impact on consumers. But like the churn of the ocean before a storm, and the subsequent tranquility after the worst is over, there is a good lesson for investors: those who do not panic amid the clouds of confusion are often rewarded with sunnier skies.

Recent Bulls and Bears (data from Yardeni Research)

The longest bull market on record started in March 2009 after the Great Financial Crisis (GFC) Bear Market mauled its way through the system. The GFC Bear lasted 517 days (from 10/9/2007-3/9/2009) and caused a 56.8 percent drop in the S&P 500 index. Yes, it was painful but those who remained invested would soon enjoy a stunning 11 years of upward progress in stocks.

The party finally ended in March 2020, when the pandemic wreaked havoc on our lives, ushering in the COVID Bear Market. To help thaw the frozen economy, Congress enacted a series of spending measures and concurrently, the Federal Reserve slashed interest rates to zero and purchased government and mortgage-backed bonds. The combination of these trillions of dollars that flowed into the system truncated the COVID Bear, which lasted only 33 days (2/19/20-3/23/20), but the damage was intense with a 33.9 percent drop in the S&P 500 index.

The new bull market emerged from the worst days of the pandemic and lasted until January 2022 (the technology sector reached its peak a few months earlier, in November 2021). As 2022 started, it was obvious that the Federal Reserve was planning to increase interest rates in order to clamp down on inflation. Few anticipated that the central bank would conduct its most aggressive rate hike campaign since the early 1980’s. High inflation and rising interest rates were the toxic combination that brought down stock (and bond) prices throughout 2022, until what we now know was the low print for the S&P 500 on October 12, 2022. The Fed Bear Market lasted 282 days (1/3/2022-10/12/2022) and slashed the value of the S&P 500 by 25.4 percent.

Since October of last year, there were plenty of predictions that still-high inflation alongside high interest rates would keep the bear active and would trigger a recession at some point in 2023. And yet, stock index prices seemed to defy expectations, as many companies were able to make money, job creation continued and new innovation in the form of A/I ignited animal spirits. The bear market ended on June 8th, which marked the day that the S&P 500 index had climbed more than 20 percent from the January 2022 lows.

There will be much talk about this new bull, but here’s what to expect in the near term: some investors who tut-tutted the stock market and doubted its ability to recover, will throw in the towel and pile into stocks. Others will say that the recent gains are only from a small group of Mega-Cap Tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, NVIDIA, and Tesla), and the narrowness of the rally means that the recent rally cannot be sustained. The rest of us (aka rational, long-term investors) will happily look past the two extremes and cling to our well-diversified portfolios of index and exchange-traded funds.