The S&P 500 is now in what Wall Street calls a bull market, meaning the index is up 20% or more from its most recent low.
Here are some answers to questions about bull and bear markets:
WHY IS IT CALLED A BULL MARKET?
Wall Street’s nickname for a booming stock market is a bull market because the bulls are charging, said Sam Stovall, chief investment strategist at CFRA. In contrast, bears hibernate, so bears represent a shrinking market.
WHEN DID THE NEW BULL MARKET START?
This latest bull market is considered to have started on October 13, 2022, a day after the S&P 500 closed at its most recent low of 3,577.03.
WHY DID THE MARKET RALLY?
Largely because the economy has defied forecasts by not falling into a recession, at least not yet.
Markets fell last year on fears that the worst inflation in decades would ravage the economy. Specifically, Wall Street has been spooked by the aggressive action taken by the Federal Reserve to combat high inflation.
The Fed pushed interest rates to their highest level since 2007, from virtually zero at the start of last year. The goal was to lower inflation by slowing the economy and lowering the prices of stocks, bonds, and other investments. That left many investors bracing for a recession for months, but a remarkably resilient labor market kept the economy afloat.
Inflation, meanwhile, has eased since peaking last summer. This makes Wall Street hopeful that the Fed will soon stop raising interest rates.
The Dow Jones Industrial Average and the Nasdaq are already in bull markets, having entered them in November and May respectively.
SO EVERYTHING IS FINE ?
Barely. The Fed is probably not done raising interest rates yet. Even if it holds rates steady at its next meeting, which would be the first time in over a year, traders expect the Fed to resume its hike in July. The hope is that this will eventually be the last rate hike, but persistent inflation could upset that.
This keeps the pressure on the whole economy and in particular on the banking and manufacturing sectors, which have already shown cracks.
Most of the S&P 500’s gains 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 stock market values in the S&P 500, all outperformed the index. Their huge size gives their moves extra weight on the index, as almost half of the stocks in the index have fallen so far in 2023.
HOW LONG DO BULL MARKETS TYPICALLY LAST?
Since 1932, bull markets have lasted on average almost 5 years and the S&P 500 has recorded a gain of 177.8%. The longest bull market began in March 2009, near the end of the Great Recession, and roamed Wall Street for nearly 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. This bull market was the shortest since 1932, lasting about 21 months, according to data from the S&P Dow Jones indices. However, the S&P 500 more than doubled (+114.4%).
WERE WE NOT JUST IN A BEAR MARKET?
By entering a bull market, the S&P 500 effectively ended the bear market that started on January 3, 2022. Officially, the bear market is considered to have ended on October 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 this bear?
The now-dead bear market lasted about nine months and saw a 25.4% decline. It was pretty tame as far as bear markets go. Since 1950, the average bear market has lasted 13 months and the S&P 500 has fallen 34.2%. Since 1929, the average bear market has lasted 19.6 months and the S&P 500 has fallen 39.4%