After outperforming both the S&P 500 and Nasdaq Composite in November, the Dow Jones Industrial Average broke out of bear market territory, based on commonly cited criteria, on its last trading day. of month.
But before investors get too excited about a new bull market for stocks, there’s plenty of reason to be cautious.
Dow
DIA,
ended Wednesday’s session at its highest close since April 21, according to Dow Jones market data. Thanks to gains fueled by comments by Fed Chair Jerome Powell at the Brookings Institution, blue-chip gains are now up 20.4% from their September 30 lows, which means about Technically, it has broken out of bear market territory. This is the only major equity index to do so.
Typically, when a certain index or asset has rallied 20% or more from its recent bear market low, it is technically said to have broken out of market territory. reduced price.
Throughout the history of financial markets, there have been many examples of stocks going up in a bear market, but eventually falling and wiping out all of those gains.
During a prolonged bear market downturn, stocks often move higher, only to see their gains again and again. This has happened more than three times since early 2022, including notable protests that occurred in March, July and August, and again since mid-October, according to FactSet data. .
Looking back further, the history of the market over the past few decades is full of similar examples, as MarketWatch reported.
After the burst of the dot-com bubble, the Nasdaq Composite experienced at least seven rallies of 20% or more before hitting a cycle low in 2002.
Market strategists are particularly cautious considering that the Fed is still raising rates, although Fed Chairman Jerome Powell hinted on Wednesday that senior Fed officials will likely opt for a smaller increase. in December after four consecutive 75 basis points gains – comments that helped boost the broader stock market. – The market skyrocketed.
Ultimately, this underscores a simple point: it’s hard to tell when a bear market will actually end, as the beginning of a new bull market is often only apparent in retrospect — no less than a challenge. determining when to start a recession.
A similar principle holds true for the economy. Although a decline in gross domestic product for consecutive quarters is often described as a “technical” recession, it is not a criterion used by the National Bureau of Economic Research when determining whether the U.S. economy Is there a real recession?
As the Dow edged higher late last week, a UBS market strategist warned that investors should expect more volatility.
“We remain skeptical that the recent rally marks the beginning of a new market regime. The Fed’s priority is likely to remain the fight against inflation, pending a softer price stream and more stable jobs data. In that context, we favor the addition of defensive assets in both equity and fixed income markets, said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Blue-chips ended Wednesday’s session at 34,589.77, up 737.24 points, or 2.2%. S&P500
SPX,
and Nasdaq
COMPUTER,
also recorded a strong increase of 3.1% and 4.4%. It was the best session for all three indices in about three weeks.
