The financial-media-lite is twisting itself into pretzels trying to define, categorize, and pigeonhole recent market action into a systematic taxonomy. I’ve written before on the folly of simplistically defining bull markets, bear markets and corrections by the size of the move:
A Bear Market Does Not Start At 20% Down
As much as financial journalists might wish the markets to conform to their dictates, the markets refuse.
A recent example of this silliness:
“Blink and you may have missed it — the Dow Jones Industrial Average is in a bull market, reached on a day when data showed a record number of people filing for unemployment benefits.” – MarketWatch – Why this wild coronavirus rally has Wall Street experts fearing a bull-market trap
Really? The rush to declare the bear market over by defining it out of existence is enough to make Don Quixote blush. So if the decline had been followed by a 20.1% rally the bear market would be over, but if the rally only managed 19.9% it would continue? Nuts.
Sensible analysts scoff at such word games:
”I think you have to be a fool to actually think that the stock market moving an arbitrary 20% in either direction means anything to anyone anywhere in the world,” wrote said JC Parets, who runs research firm All Star Charts, on Friday.” – MarketWatch – Does the Dow’s 21% surge in 3 days put it back in a bull market? ‘The market doesn’t work that way,’ says one researcher
The traditional meaning of a bull or bear market – a uptrend or downtrend extended over a substantial time frame – worked. The new magic 20% threshold doesn’t.
‘nuff said.
the power of these terms lies in the meanings we impute to them. technical analysis can create self-fulfilling prophecies [e.g. a stock or index crosses the x week moving average – how many people will trade simultaneously on such a signal?]. so too can the terms bull and bear create attitudes and thus actions.
i strongly suspect, though, that such effects are short-lived and carry low information value.
i agree the arbitrariness of these numbers is ridiculous.
I suspect at least part of the motivation is to keep the public buying stocks when Wall Street wants to sell. Waiting until the market is down 20% before admitting there’s a bear market may help keep more than a few gullible investors in buy-the-dip mode. Without them, who is the smart money going to sell to?
It also lends itself to the cheap production of volumes of substance-free digital ink. Writers can data mine and come up with any number of stories to the effect of ‘… in XX% of bear markets since 19YY, stocks were up ZZ% one year later …’ and other similar sorts of nonsense. Of course you can create any statistic you like by suitably defining “bear markets”.