What does "over" mean? Whenever you talk about a bull or bear market, you have to specify the timeframe. The bear market clearly exceeded any timeframe necessary. It started in October 2007...16 months through the end of February. So the question is, How long of an upward trend would it take to consider that bear market to be over? Three months? Six months? Most people would say that's too short. A year? Maybe. Two to three years? Most people would buy that.
But some wouldn't. I read recently a well-reasoned piece in which the author argued that the five-year "bull market" of 2002-2007 wasn't really a bull market, it was simply an interruption in a secular bear market that began with the dot-com collapse in 2000 and is still with us.
For myself, I tend to turn to the concept of investability. Is an upturn investable for most folks who are paying moderate attention? I'm beginning to think this upturn passes that test. The most recent low was March 9, when the S&P 500 closed at 677. Since then, we've witnessed a 6-week period during which the S&P 500 has risen to 841 (as I write this), an increase of 24%. The rise was steep for four weeks, then has become a rate of about 2%-per-week for the past couple of weeks.
So the common definition of a bull market as being a 20%-or-more rise over an extended period of time is already half-fulfilled: The market has risen well over 20%. The remaining part, "an extended period of time," is the open question. If the market reverses itself again, starts to go down, and drops back below its low of March 9, I think most people would say the bear market never ended, it just got interrupted. It would certainly look that way on a chart.
So I'm hedging my bets with a "maybe." Here are a few positive data points:
- My Timing Outlook, after many months of negative readings, turned neutral a few weeks ago and positive last week (see post below).
- State Street, a financial services firm that tracks buying and selling within the $12 trillion in assets it holds as custodian, said flows into U.S. equities in recent weeks have been close to the highest in 12 years, in the 98th percentile of all months they have tracked. State Street said in a note, "Institutional investors are backing this rally."
- Earnings have been, on average, a little better than expected during the reporting season that began in April.
- Word is that all the banks undergoing government stress tests will pass them.
- The market as a whole is still undervalued by most measures.
- And, of course, the trend line itself has been upward for six consecutive weeks.
Can the market turn around and decline, even crash, from here? Certainly. No matter how many reasons support a March 9th bottom and the idea that there is still plenty of upside from here, no one can predict the future. The reality is that there could be an unexpected downside to stocks that could unfold soon. Downside scenarios include:
- The economy is still in decline by most measures, although Federal government officials are seeing some "green shoots." Historically, the stock market is a leading indicator for the economy. Typically, economic measures generally get better about six months after the stock market starts moving back up.
- There could be some negative earnings surprises in store--investors don't like negative surprises or high levels of uncertainty.
- A complete reversal in investor sentiment could materialize and wipe out the gains since March 9.
Adding it all up, I get "maybe." Maybe the bear market is over. Maybe the current positive trend is investable. But I would be cautious and careful, and certainly not commit all of my "stock money" to a new bull market just yet.
