The S&P 500 is currently in what Wall Street calls a bull market, meaning the index is up 20% or more since its recent bottom.
Here are some answers to questions about bull and bear markets:
WHY IS IT CALLED BULL MARKET?
“Wall Street's nickname for a booming stock market is a bull market because bulls charge,” said Sam Stovall, chief investment strategist at CFRA. In contrast, bears hibernate, so bears represent a market that is retreating.
When did the new bull market start?
This latest bull market is believed to have started on Oct. 13, 2022, a day after the S&P 500 closed at its recent low of 3,577.03.
Why has the market recovered?
Above all because, despite all the forecasts, the economy has not yet slipped into a recession, at least not yet.
Markets collapsed last year on fears that the worst inflation in decades would devastate the economy. More specifically, Wall Street has been unsettled by the Federal Reserve's aggressive actions to combat high inflation.
The Fed has hiked interest rates to their highest level since 2007 from near zero early last year. The goal was to reduce inflation by slowing the economy and lowering the prices of stocks, bonds, and other assets. As a result, many investors spent months preparing for a recession, but a remarkably resilient labor market has kept the economy afloat.
Inflation, meanwhile, has eased since it peaked last summer. Therefore, Wall Street is hoping that the Fed will stop raising rates soon.
Both the Dow Jones Industrial Average and the Nasdaq are already in a bull market, having entered them in November and May, respectively.
So is everything ok?
Barely. The Fed is probably still not done raising rates. Even if it holds rates steady at its next meeting, which would be the first time in more than a year, traders are expecting the Fed to resume raising rates in July. There is hope that this will ultimately be the last rate hike, but continued inflation could change that.
This continues to put pressure on the broader economy, and particularly on the banking and manufacturing industries, which are already showing some cracks.
Most of the S&P 500's gains this year have come from just a small group of stocks, which critics say is unsustainable. Apple (+30%), Microsoft (+44%) and Alphabet (+25%), the companies with the highest market values in the S&P 500, all outperformed the index. Their massive size adds weight to their movements in the index, while so far in 2023 nearly half of the stocks in the index have fallen.
How long do bull markets usually last?
Bull markets have averaged nearly five years since 1932, and the S&P 500 has gained 177.8%. The longest bull market began in March 2009, just before the end of the Great Recession, and lasted almost 11 years on Wall Street.
When was the previous bull market?
The previous bull market started on March 23, 2020 when the market recovered from a lightning-fast bear market caused by the outbreak of the global pandemic. According to data from S&P Dow Jones Indices, this bull market was the shortest since 1932 and lasted about 21 months. Nevertheless, the S&P 500 more than doubled (+114.4%).
Weren't we in a bear market right now?
By entering a bull market, the S&P 500 effectively ended the bear market that began on January 3, 2022. Officially, the bear market is considered to have ended on October 12, 2022.
Declaring the end of a bear market may seem arbitrary and different market watchers use different definitions, but it offers a useful clue for investors.
How mean was that bear?
The now-ended bear market lasted about nine months and posted a 25.4% decline. As far as bear markets go, it was pretty benign. Since 1950, the average bear market has lasted 13 months and the S&P 500 is down 34.2%. Since 1929, the average bear market has lasted 19.6 months and the S&P 500 is down 39.4%.