Are We Still In A Bull Market?
Hey everyone, Phoenix here!
Today I want to take a step back and examine what exactly it is that makes a market considered a bull market, what it is that makes a market considered a bear market, and where we’re at right now.
Considering that we’ve had a pretty odd couple of weeks in the market with nearly two weeks of following prices followed by this week’s bullish activity, we find ourselves in a confusing place. So let’s shed some light on this topic.
What Defines a Bull Market?
In essence, a bull market is all about rising confidence and increasing investment value.
It’s characterized by a sustained increase in market prices, typically 20% or more from recent lows across several stock indices.
Some investors only consider the market a bull market if stocks reach a new all-time high. After that point is officially when the bull market begins… But I don’t really subscribe to that thought and much of the investment community doesn’t either.
A bull market doesn’t just mean a brief uptick in prices, it’s a growth trend that lasts months or even years.
For example, the bull market prior to the pandemic carried on for 11 years (2009-2020), during which stocks rose about 500%… However, it is worth pointing out that the 2009-2020 bull market began with stocks trading at deep discounts following the crash in 2007 and 2008.
But all in all, a bull market is fueled by strong economic indicators such as GDP growth, falling unemployment, and corporate profits climbing higher.
All of these boost investor confidence and during these periods the attitude of the market is optimistic. Investors are eager and confident to buy into the market, furthering the upward trend.
What Defines a Bear Market?
Conversely, a bear market is marked by a decline in market prices by 20% or more, signaling widespread investor pessimism and negative investor sentiment.
This downturn isn’t just a short-lived reaction to minor bad news but a sustained drop that often leads to economic slowdowns. (One-day or multi-day drops are common, just as days going up in the markets are common.)
Bear markets can be attributed to a number of catalysts such as economic recessions, geopolitical crises, and collapses in sectors.
In these times, fear dominates and investors are making flights to safety, pulling cash out of the market, and running for the hills. Trading volumes often dwindle for stocks and some investors scurry towards safer assets, such as bonds or gold.
All this pulls down stock prices further and deepens the bear market.
Where Are We Now?
Currently, the market presents a mixed bag, making it tricky to pin down. As Nate has shared many times recently, we find ourselves in “no man’s land”.
We’re witnessing some sectors pushing forward with great earnings and revenue growth, suggesting some bull market characteristics.
Yet, other sectors hint at bearish trends, with companies facing negative responses to their earnings, and pessimistic outlooks due to various macroeconomic pressures like interest rate uncertainty and inflation.
Technology is a great example of one of these mixed-bag sectors. Some areas of tech (and I’m going to include communications in here as well) continue to surge while other companies falter. Netflix, for example, posted record-breaking earnings… Just to have their stock price shoved down immediately following their earnings release.
Meanwhile, META posted great earnings and has soared…
We are seeing an extremely mixed bag on our hands, a true no man’s land in the market.
The market action this week seems bullish on the surface but is interspersed with underlying bearish events.
The key here is volatility and investor sentiment. Investors just don’t seem real confident right now — in fact, many seem extremely nervous. It’s this unpredictability and the mixed signals that can confuse the markets.
Are we in a bull market that’s merely experiencing corrections, or are we teetering on the edge of a bear market ready to take over?
The truth might lie somewhere in between in no man’s land, in what some might call a “sideways” or “choppy’ market”.
Let’s build wealth together!
— Phoenix van Zutphen
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