It seems like the bear market never happened. And maybe it wasn’t.
The stock market had another good week, with the S&P 500 index gaining 0.6% to close at 3372.85; The Dow Jones Industrial Average rose 497.54 points, or 1.8%, to 27,931.02; And Nasdaq Composite is growing 0.1%. The S & P500 gain was substantial at the weekend, within 0.4 percentage points of the index’s 19-week high.
Assuming that the S&P 500 trades at a new high, this would be the fastest recovery from a bear market on record. And it doesn’t matter that the S&P 500 took its time — the previous record was lower than the bear market — on February 3, 1966, until May 4, 1967.
But what if the market does not experience a bear market? By the traditional definition, it was clearly: The S&P 500 dropped 34% from 23 March to 23 February, more than 20% to meet the requirement. But there are other ways to think if there is really a bear market. For example, according to Dow Jones market data, a typical peak-to-peak recovery takes an average of 1,542 business days, so the rebound speed alone suggests something else is going on.
A bear market should also mark a clean break coming first. This was the situation during the 2007–09 financial crisis, as banks lagged behind the best-performing sector, and during the dot-com movement, when tech stocks suffered extensive losses, but value investors did, like bandits Was closed.
Instead, Marketfield Asset Management CEO Michael Saul compared the drop to two other big declines, one officially a bear market, the other not.
The first time was in 1987, when the S&P 500 dropped 34% from its all-time high – including 20% Black Monday Tumblr, still the largest single-day decline on record. The second occurred in 1998, when the S&P 500 fell 19.3% due to the emerging market debt crisis and the blow-up of hedge fund long-term capital management. In both cases, rebounds made by Fed Larges were quicker and the former causing bubbles in Japan, the latter being technology. And in Saul’s opinion, another bubble is being inflated.
“Under current circumstances, central banks’ chances of being ‘third-time lucky’ seem far-fetched, and we increasingly believe that we are growing into some form of ‘bubble trouble’ on the road,” Shaol writes . ”
You don’t need to take his word for it. Consider Bank of America analyst John Murphy’s upgrade to Tesla (ticker: TSLA) on Friday morning — which is up 295% to $ 1,650.71 from sale to hold in 2020. It was not that Murphy’s sudden heart was changed over Elphi Musk’s company. Instead, he cited Tesla’s unfit access to cheap capital derived from the never-ending upsurge of his stock.
“It is important to recognize how high the upward spiral is [Tesla’s] As the stock goes away, inexpensive capital is converted into fund development, which is then rewarded by investors with a high stock price, ”writes Murphy.
Think about that for a minute. Murphy is describing a positive feedback loop, one that basically suggests that the upside is guaranteed to lead to a price. And the same dynamic is going on in many parts of the market, says Jason Brady, CEO of Asset Manager Thornburg. The market is being led by companies that have become stronger due to coronovirus, may offer an increase at a time when the Federal Reserve has pushed interest rates well below inflation levels. It’s a good story, he says, but may start to go too far.
“That’s where things are getting a little silly,” says Brady.
So if the market is in a bubble, can it cause pop? BTIG strategist Julian Emanuel offers some potential catalysts. A vaccine can cause investors to buy financially sensitive shares that benefit everyone working from home. Interest rates could rise, leading to an increase in financial stocks and to contract leaps and bounds. Continued tensions with China may also cause problems for the upgrading of technical stocks.
“Or there will be no catalyst, as bubbles are identified in blurring, as in Y2K,” Imamuel writes.
And maybe then, we’ll have a real, genuine, honest-to-God bear market.
Write Ben Lewison at [email protected]