The Nasdaq Composite index has rallied over 20% from its June low point, but that rebound doesn’t necessary signal the start of a bull market, reports an article in MarketWatch. In fact, there have been many times throughout history when the Nasdaq has bounced back more than 20% in the midst of a bear market, the most famous of which happened in April/May of 2001 when the index saw a 40% rally even as the Dotcom bubble burst was still causing major damage.
In addition to the Nasdaq, the Dow Jones Industrial Average (DJIA) benchmark has seen rallies of 20% or more during bear markets, including during the worst days of the Great Depression in 1931. No market historian would point to that rally as a bull market. But defining bull and bear markets can be difficult; not every 20% rally is a bull, and not every 20% drop is a bear. Though some analysts have given up trying to lay out precise criteria for bull and bear markets, the article points to the calendar maintained by Ned Davis Research. That firm defines a bull market as a 30% increase in the DJIA after 50 days, or a 13% jump after 155 days. On the flip side, a bear market would mean a 30% decline in the DJIA after 50 days, or a 13% fall after 145 days. Adding to the intricacies of those definitions, Ned Davis Research also uses the Value Line Geometric Index to determine qualifications for a bear or bull market, defining each as 30% in the opposite direction.
Specific classification of a bull or bear market isn’t as important as the reminder that these rallies have happened throughout history, and are not necessarily a sign to let the good times roll. Huge rallies “are actually more common in bear than in bull markets,” the article stresses. And while it’s entirely possible that the Nasdaq’s June low point signaled the bear market’s end, it’s still too soon to declare a new bull market.
