Last week there was a lot of chatter about the US500 finally rising >20% from the October lows. A 20% price rise is the very definition of a bull market, just as a 20% fall is a bear market.
All analysts have pointed this out and the race has also been on to predict what will happen next and where we stand. BOA‘s Chief Equity Technical Analyst Stephen Suttmeier believes that this is the beginning of a long-term uptrend that will take the US500 to 5.000 by June 2024; on the other hand, both Wells Fargo – through its Head of Global Strategy Paul Christopher – and JPMorgan – through no less than CIO Bob Michele, who helps manage 700 billion in assets – advise ”not to chase the rally”. Specifically, Michele claims that the current situation reminds him a lot of 2008 and that the largest US bank is preparing for the possibility of a recession within a year that would reduce GDP by something between -3.5% and -5%. In short, he is calling a bear market rally.
Is being able to define it really so important? Well, partly yes: it just means that you should be cautious about entering the market after a substantial appreciation. But the truth is also that, with such caution, you may miss entry points, and the market is a place that rewards you precisely for the risks you take. Meanwhile, the Nasdaq is up 41.85% from Oct 2020 lows at yesterday’s close.
US500, some possible LT entry points
But back to the main point: does the +24.85% with which the US500 closed yesterday compared to 13 October really give us absolute confidence that the bearish phase is behind us (moreover, in a world where equity valuations are high compared to the current level of rates at the same time as inflation is still very high, albeit falling rapidly)? Looking at the two great Bear Markets of this millennium, that of 2000-2002 and that of 2007-2009 (let’s leave out 2020 due to the exceptional nature of the Covid situation), the answer is clear: No
From the highs of 1 September 2000, the US500 fell -49.61% in the following 25 months: in the meantime, it rose at least three times by more than 20% and in some cases the rise lasted more than three months.
US500, 2000 – 2002 
Something very similar can be said for the GFC: US500 collapsed then by -57.87% within 17 months but had at least 2 ”rebounds” of 20% and 27.37% respectively, although to be fair they were short in time and towards the end of the bear market.
US500, 2007 – 2009
Summing up: rising more than 20% is no absolute guarantee of the end of a bearish phase; however, the length of the current one (almost 8 months) and – for example- the performance of the Nasdaq plays in favour of this. We shall see.
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Marco Turatti
Market Analyst
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