Just this week, just about every mainstream financial news outlet has declared stocks have entered a bull market. But wait … haven’t stocks been going up since last October? What exactly changed this week?
The S&P reached a level 20% above the October lows.
Why 20%? Why not 10% … 15% … 30% … or for that matter 19.32478%? Why not a Fibonacci number? And why is it it just now “entered” a bull market?
We could write a book on the holes in this declaration. In fact the “gains” in stocks aren’t even gains in stocks per se … they depend on your (entirely arbitrary) choice of units. The returns of this group of stocks aren’t absolute … they’re tacitly stated relative to US dollars. A bit parochial, no? Choose pounds or euros or pesos or ounces of gold, and you get a completely different number. So if you owned the S&P in England or Argentina or bought it with gold it did not “enter a bull market” this week.
So it’s a bull market because … the financial media have declared it to be.
Here at Financology, we don’t play these newfangled word games. If it’s going up, it’s a bull market. If it’s going down, it’s a bear market. A bull market begins when it starts going up, and ends when it stops. Not 20% later.
Why might the media do differently? Is it possible they imagine this is actionable news? If so, what action might they envision among consumers of their drivel? Is it possible their Wall Street masters want to sell them something?
Wall Street bonuses are down. Goldman Sachs profits are down. Just yesterday Citigroup announced job cuts. The clever people who inhabit Wall Street are always looking for some hook to get the rabble to buy. Last week it was AI. This week it’s a new “bull market”.
Maybe that’s just our cynical side talking. Maybe it just gives them something to talk about, or to trigger coveted clicks. But what if stocks then fall back below the magic 20% line? Then they can have that whole semantic meaningful debate about whether they’re still in a “bull market”. It’s so much easier than digging into discounted cash flow analysis or other such things that actually might shed light on future return prospects. Oh … and it’s also a handy springboard for the opportunity to data mine for gems like “92% of the time after this threshold was reached, the gains continued”. Guess this doesn’t happen at 15%.
But wait … we can play games like that too. Even better. Our research reveals that between 15% and 20% up, 100% of the time there were gains.
“If it’s going up, it’s a bull market. If it’s going down, it’s a bear market.”
I think the traditional definitions are sequential higher lows and higher highs, and lower lows and lower highs.
Fair enough … actually here we require that the trend is extended in time. Since markets don’t move in straight lines, that implies peaks and valleys along the way.
The “extended in time” part is intended to distinguish a bear market from a crash. Although by the 20% media definition, the one day decline on Black Monday, October 19, 1987, of 22.6% in the Dow Jones Industrials would qualify as a “bear market”. But most call it a “crash”. Zooming out a bit, the whole process played out over a few weeks, which I would still call a “crash”. Indeed, we’ve referred to the four week plunge in February-March 2020 not as a bear market but as a crash.
So exactly how long is “extended in time”? That’s the beauty of it … the use of informal terms doesn’t require or imply mathematical precision. That’s what numbers are for.
John Hussman weighs in:
“Phrases like “bull market” and “bear market” can create a false sense of security because they seem to offer investors assurance about extended market direction – witness the constant chatter here about a “new” bull market that has “legs.” Words like that, often dressed up with adjectives like “official” to boost their respectability, quietly encourage investors to think “this thing is going to go up for a very long time.” So shiny.”
https://www.hussmanfunds.com/comment/mc230619/