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The
Dow Jones Industrial Average's surge of over 20% from its
coronavirus-induced recent low this week, by one definition used
on Wall Street, suggests a new bull market. The surge came on
hopes a $2 trillion stimulus measure would flood the country
with cash in a bid to counter the economic impact of the
intensifying pandemic.
But that definition should be treated with a large piece of
caution. The very definition of bull market is debatable, and
given the market's volatility on news about the pandemic, some
said that calling the move upwards a "bull market" was
tantamount to missing the forest for the trees.
"Labeling it a bull market when it fits a definition of being up
20% kind of removes any perspective from where we have been over
the past month, and more importantly, where we might be going
over the next few months," said Willie Delwiche, an investment
strategist at Robert W. Baird.
Other definitions say the index should crest the previous high
and that a bull market can only be identified a long time after
the event.
For example, a mini-bull market has occurred previously during a
bear market - providing a false hope of relief. The S&P 500
logged a gain of 24% over a period of 30 trading days starting
on Nov. 20, 2008, even as the bear market continued during the
height of the financial crisis, and the index did not bottom
till March 9, 2009, marking the start of the bull market.
Ed Yardeni, president and chief investment strategist at Yardeni
Research, said that while there is consensus about the
definition of a bear market - a 20% decline from a peak - the
definition of a bull market is less widely agreed upon.
"Bull markets occur between bear markets," Yardeni said.
Part of the confusion about whether the Dow is indeed out of the
bear market is because while one group is widely recognized for
determining U.S. economic cycles - the National Bureau of
Economic Research - no such body is uniformly accepted for
defining bull and bear markets.
Analysts warn against putting too much stock in strict
definitions of market cycles. Factors like the velocity of the
market’s rise or fall, how much average stocks have changed, and
the reasons behind the moves also contribute to whether
investors view a major move as a turning point in sentiment or a
short-term interruption to an existing bull or bear market.
Howard Silverblatt, senior index analyst at S&P Dow Jones
Indices in New York, said he still sees the Dow in a bear
market. The Dow would need to hit 29,551.42, the high of Feb.
12, to be technically in a bull market, he said.
"If we keep going up, eventually we could have a bull, but until
it hits the record, it's a bull run in a bear market,"
Silverblatt said.
(Reporting by Saqib Iqbal Ahmed and Noel Randewich; Additional
reporting by Caroline Valetkevitch; editing by Megan Davies and
Leslie Adler)
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