The S&P 500, the index obsessed by investors, executives and government officials, on Monday was close to finishing 20 percent above its lowest level since 2022, a gain that some on Wall Street see as the start of a bull market and a new phase of investment abundance.
The index hovered around the threshold on Monday, moving above it multiple times before ending 0.2% lower for the day.
Still, the move underscores the stock market’s strong recovery as fears of high inflation, rising interest rates and a looming recession have steadily pushed the index down from its peak in early 2022. The S&P 500 entered a bear market — which is defined as a decline of 20 percent or more from the index’s peak in June of that year, and continued to slide until bottoming out in October.
The terms “bull” and “bear” are shorthand for excitement or fear among investors about the outlook for public companies. But while investors tend to agree on how to mark the start of a bear market, there is less consensus on how to define the start of a bull market, especially when the concerns that initially sent stocks lower still linger.
A rule of thumb is that a new bull market is confirmed when an index makes a new high after rising from a bear market low. By that measure, the S&P 500 is still more than 10 percent short.
But some investors say it’s easier to view any gain of 20 percent or more in a broad-based index like the S&P 500 as an important milestone. with the measurement taken at the end of the trading day. More than $15 trillion in investable assets are benchmarked or indexed to the S&P 500, according to S&P Dow Jones Indices, which manages the index.
“We’re not in a terrible position,” said James Masserio, co-head of Americas equities at Société Générale. “There are certainly risks of a recession, but we have to see how they materialize over several months and into the next year.” So technically it’s a bull market.”
Still, a 20 percent rise from a low is mathematically less significant than a 20 percent drop from a high. Other investors prefer a valuation that includes a broader view of investor sentiment, economic growth and market direction.
“If a stock goes from $10 to $5 and then goes up to $6, it’s not in a new bull market,” said Peter Bookwar, chief investment officer at Bleakley Financial Group. “Determining a bull or bear market, however it is done, should be done by taking a broad view of the market.”
The S&P 500’s recent rally has been led by a small group of technology stocks driven by enthusiasm about the profit-making potential of artificial intelligence, especially for those behind its development and the manufacturing of the hardware needed to power it. Nvidia, the chipmaker, has come to symbolize this newfound enthusiasm for AI because its semiconductors are used in the technology. The company is up nearly 170 percent this year — gains that have brought its valuation close to $1 trillion.
The average individual stock in the S&P 500 has risen less than 3 percent this year, market data showed by Friday’s close, compared with a gain of more than 11 percentage for the index as a whole. About 90 percent of the index’s rise was due to huge gains for just seven of the biggest companies: Amazon, Apple, Meta, Microsoft, Nvidia, Tesla and Alphabet, the parent company of Google.
Apple rose 2.2% by early afternoon on Monday, briefly marking a new high for the company, before sliding to end 0.8% lower, weighing on the index.
The S&P 500 also tracks only the largest companies listed in the United States. Smaller companies tend to be more exposed to fluctuations in the U.S. economy because larger firms generate a significant share of revenue overseas.
The Russell 2000 index, which tracks smaller public companies, recently posted more modest gains than its large-cap counterpart. The index fell more than 30 percent from its peak in November 2021 to its lowest level in June last year. Since then, the index has risen about 9 percent. On Monday, the index fell 1.3 percent after weaker-than-expected economic data for the services sector.
By contrast, the Nasdaq Composite, which is heavily weighted toward major technology companies, is up more than 26 percent this year alone. However, it remains nearly 20 percent below its previous peak reached in late 2021.
“I think the 20 percent rule was easy for people to follow,” said Samir Samana, senior global market strategist at Wells Fargo Investment Institute. “Unfortunately, some of these bear market rallies are triggering that threshold, which we view as a false signal.”
For many investors, the great returns of the stock market are not reflected in the performance of their portfolios. That’s because with so much concern about a possible recession, fund managers are largely holding more cash and hedging their holdings against the risk of a sharp downturn, forgoing gains in favor of greater certainty.
Just over 27 percent of funds tracked by Morningstar that are benchmarked against the S&P 500 beat the index this year, compared with nearly 52 percent last year and an average of 40 percent since 2000.
Hedge funds and other leveraged investors made big bets on the S&P 500 falling, according to data from the Commodity Futures Trading Commission.
“Everybody was so defensive,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “There’s a lot of money on the sidelines, and that’s actually quite painful for a lot of fund managers.”