Still Not Officially a Bear Market
There are lots of ways people define bear markets. I define them by both time and price. I don’t consider October 1987 or March 2020 to be bear markets. They saw steep drops, but the down wave ended quickly. I’ve never seen anyone seriously refer to the 30-percent Nasdaq correction in the summer of 1998 as a bear market, which also was a fast drop that quickly reversed. Those were all panics within bull markets.
The past three bear markets were the 1970s, 2000-2002 and 2008-2009. What do they all share? Breaks of long-term moving averages. While I do believe this is a bear market that began almost a year ago in the Nasdaq, until these major moving averages break, it is possible this is merely a massive correction within a still extant bull market. The collapse of crypto, for example, could in hindsight be similar to the S&L Crisis.
The S&P 500 Index broke the 50-month moving average in all three prior bear markets.
I use the DJIA for the 1970s because it was the dominant index then. The 50-month MA almost becomes a flat line and the market oscillates around it for 15 years.
The move in markets to this point is the reversal of the blow-off top caused by coronavirus stimulus and central bank intervention. Widely-held stocks such as McDonald’s are at all-time highs and not experiencing any company-specific catalyst for those highs, something I interpret as confirmation the bear hasn’t really kicked in yet. That Amazon fell 50 percent or investors suffer larger losses from tech holdings doesn’t matter, just as I don’t think the bear market in 2000 got going until September 2000, with sectors such as consumer staples peaking in December 2000. Outside of areas such as tech, the move up to this point has been a warm-up for the main event.
The bear market will be official when moving averages such as the 50-month MA break. Unless there is a sharp reversal in the next month, that break won’t come until 2023. Going by the 2000-2002 bear market, the 50-month MA break on the S&P 500 might not occur until around March or April, 15 to 16 months from the top.