July 03, 2023

You may have heard we’re in a bull market. Apparently, the worst is behind us, risk is off, and we’re ready to roll (please note my sarcasm). Look no further than the Nasdaq Composite Index from January to mid-June 2023. It was up 27.5% and logged six straight weeks of gains to end the period (the longest streak since 2020).

By one definition, a bull market happens once stocks are more than 20% off prior bear market lows. Conversely, a bear market is when stocks are down 20% off their highs.

To me, this definition is almost irrelevant, and investors shouldn’t put too much weight into these standards. For instance, there were four rallies of 25%-44% before the Nasdaq finally hit the bottom of the 2000-2002 bear market.

Is up or down 20% the best way to gauge performance? I don’t think so.

To really judge a market, it takes time. Only after enough time has passed can you say it was a bull or bear market, along with determining when it began and when it ended.

How much time is enough? I don’t think anybody knows. But it’s probably longer than you expect.

For example, the Dow Jones Industrial Average went sideways from February 1966 to November 1982. It didn’t hit a new high for 16 years. Yet during that time, you could’ve been fooled. The Dow poked above its 1966 high a few years later in January 1973, but it was temporary and occurred almost a decade before the new next high in 1982.

Would anyone in their right mind call these examples bull markets? No. It was a 16-year sideways grind with five drawdowns of 24% or more.

This year’s rally has been nice for investors. But there’s no all-clear sign yet.

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