The S&P 500, the index that investors, managers and government officials are obsessed with, rose 20 percent above its 2022 low on Monday, but some on Wall Street see the rise as the start of a bull market. It is regarded as a new stage of investment boom. .
The index fluctuated around its benchmark on Monday, breaking above it several times in morning trading. The high highlights a strong recovery in the stock market, as stock indices have been steadily declining from their early 2022 highs due to high inflation, rising interest rates and fears of an impending recession. The S&P 500 is in a bear market. The index fell more than 20 percent from its June high of the same year and continued its decline until hitting a low in October.
The terms “bullish” and “bearish” are shorthand for investors’ excitement or fear about the prospects of public companies. However, while investors tend to agree on how to mark the beginning of a bear market, there is less consensus on how to define the beginning. A bull market can have a strong impact, especially if the concerns that drove the stock down in the first place are still lingering.
One rule of thumb is that a new bull market is confirmed when the index rises from a bear market low and then hits a new high. By this measure, the S&P 500 is still over 10% short.
But some investors say it’s easier to see a 20% or more gain in a broad index like the S&P 500, measured at the end of the trading day, as a significant milestone. More than $15 trillion of invested assets are benchmarked or indexed to the S&P 500 index, according to S&P Dow Jones Indices, which manages the index.
“We are not in a terrible situation,” said James Macerio, co-head of Americas equities at Societe Generale. “There is certainly a risk of a recession, but we will have to see how it materializes in the months and next year. So technically speaking, this is a bull market.”
Yet, mathematically, a 20 percent rise from a low has no greater impact than a 20 percent fall from a high. Some investors prefer valuations that take into account a wide range of factors such as investor sentiment, economic growth and market direction.
“If the stock goes from $10 to $5 and then back to $6, you’re not in a new bull market,” said Peter Bookver, chief investment officer at Bleakley Financial Group. . “Defining a bull market or a bear market in any way should be done by looking broadly at the market.”
The recent rise in the S&P 500 index has driven a small number of high-tech firms driven by enthusiasm for the profit-generating potential of artificial intelligence, especially the companies at the heart of its development and the production of the hardware needed to power it. Stocks are leading. His chip maker, Nvidia, has become the epitome of this newfound enthusiasm for AI, as the company’s semiconductors are used in his AI technology. The company is up almost 170 percent this year, and its earnings have pushed its valuation closer to $1 trillion.
Average individual stocks across the S&P 500 are up less than 3% this year, according to market data through Friday’s close, while the overall S&P 500 is up about 12%. About 90% of the index gains came from big gains in just seven of the biggest companies: Amazon, Apple, Meta, Microsoft, Nvidia, Tesla and Google parent Alphabet.
Apple rose 1.8% on Monday, surpassing 40% year-to-date gains and a new high for a tech giant.
The S&P 500 also tracks only the largest US-listed companies. Because large companies generate a significant portion of their revenues offshore, small businesses are generally more exposed to fluctuations in the US economy.
The Russell 2000 Index, which tracks smaller publicly traded companies, has recently posted modest gains relative to larger companies. The index has fallen more than 30% from its peak in November 2021 to its low in June last year. Since then, the index has risen about 9%. On Monday, the index fell about 1% after weaker-than-expected economic data in the services sector.
By contrast, the Nasdaq Composite, which is heavily weighted by big tech companies, has risen nearly 30% this year alone. Still, it’s still nearly 20% below its previous peak in late 2021.
“I think the 20% rule was an easy rule for people to follow,” said Samir Samana, senior global market strategist at Wells Fargo Investment Institute. “Unfortunately, some of these bear market gains have triggered that threshold and we see this as a false signal.”
For many investors, big gains in the stock market are not reflected in portfolio performance. That’s because the concern about the possibility of an economic recession is so strong that fund managers mainly refrain from making profits in favor of increasing cash, hedging the risk of a plunge in assets held, and increasing safety. It is because
More than 27% of funds benchmarked to the S&P 500, tracked by Morningstar, outperformed the index this year, compared with almost 52% last year and an average of 40% since 2000.
Hedge funds and other leveraged investors are betting particularly hard on the S&P 500’s decline, according to data from the U.S. Commodity Futures Trading Commission.
“Everyone is very defensive,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “This is actually very painful for many fund managers because there is a lot of cash in their side hustle.”
