Factors for Identifying a Bull Market We usually take analysts’ word on the state of the market, but it is something analysts also argue on. So let’s check this out ourselves.
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While it may appear elementary in stock trading to identify whether you’re in a bull market or bear market, it isn’t always black and white. The Long Bull Run Continues to Potentially Record Levels The stock market is now approaching what could be the longest bull run ever. That’s amazing, and particularly so when considering that it was trapped in the big financial crisis that struck in 2008. That was ten years back, when the US economy was on course for a potential breakdown. Analysts, particularly Bank of America Merrill Lynch’s Michael Hartnett, believe that this bull market could be setting an all-time longevity record even before August comes to a close. The bull is considered by analysts and investors to have started running on the 9 th of March, 2009, but there are divergent opinions. This assumption of March 9, 2009 is on the basis of closing prices, when the bear market preceding that period hit the bottom, based on the measurements of the S&P 500 Index (SPX). The following table by Yahoo Finance, mentioned in Investopedia, shows the massive, dominating gains made by the various indices of the stock market through the August 12 close: Stock Index
Bull Market Gain
S&P 500 Index (SPX)
319%
Dow Jones Industrial Average (DJIA)
287%
Nasdaq Composite Index (IXIC)
518%
Russell 2000 Index (RUT)
391%
Measuring the Bull Market Now let’s see how a bull market is measured. The method used, and accepted, most widely is measuring the market from the low point or the trough of the earlier bear
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market all the way to the high point or peak of the market. From that high point, the market eventually retreats by 20% or more to get to the next low of a bear market. This kind of analysis usually makes use of closing prices. So, when we consider that the S&P 500 is slightly down from its January 26 all-time peak close, Investopedia analyst Mark Kolakowski reckons it’s just too early to think we’re continuing in a bull market. Measuring the Bear Market A market is considered to be in a bear state if it experiences a 20% decline or more. The S&P 500 underwent a deep correction from the 16th of July through the 11th of October, 1990, and that sent its stock down by 19.92%. This can be rounded to 20%, which would result in this period being considered as a short bear market. However, many analysts don’t round the 19.92% figure, and therefore consider that period a correction in a larger bull market. Factors for a Bull Market to Continue If a bull market needs to continue, there must be various positive forces. The most important among these factors is the strong growth of the economy. And surely, in this period, US GDP rose at an annualized rate of 4.1% in Q2. Marketwatch considers this the fastest clip experienced in close to four years. The economic growth has led to revenues and profits in the corporate sector soaring. In Q2 this fiscal, 91% of the companies in the S&P 500 have reported earnings, and we’ve seen earnings grow by 25% and aggregate sales by 10% YOY (year-over-year), as reported by FactSet Research Systems. 79% of these companies have beaten earnings estimates while 72% have beaten sales estimates. And Goldman Sachs considers the earnings environment to be not as narrow as projected, but healthy. Taking these factors into account, one can probably say that we are in a bull environment.
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