After lagging behind the other major indexes for much of the first half of the year, the tech-heavy Nasdaq Composite has staged a robust comeback over the past weeks, officially entering a new bull market on Wednesday.
The Nasdaq had tumbled into a bear market in March, defined as a 20% drop from a recent high, and reached a recent low on June 16. After a 2.9% jump on Wednesday spurred by news that the annual rate of inflation declined more than expected in July, the index closed at 12,854.80. That leaves it 20.7% above its mid-June low.
The Dow Jones Market Data team defines a bull market’s start as a 20% move higher from a recent low. The S&P 500 index, which tracks a broad range of stocks beyond tech, is up 14.8% from its mid-June low.
The Nasdaq’s rebound is just one of the many signs that investors’ appetite for risk is creeping back.
Solid corporate earnings and positive economic data, such as the stronger than expected July jobs report, have ignited hopes that a recession is still far away. Riskier assets—from growth stocks like those found in the Nasdaq to high-yield bonds—are on the rise.
Many of the best-performing stocks in the S&P 500 since mid-June have been technology and consumer discretionary names such as
(TSLA), Ford Motor (F), and
(PYPL). Those sectors tumbled the most in the first half of 2022.
But investors aren’t out of the woods yet, and the Nasdaq’s rebound isn’t as significant as it seems. Since the index is rising off a much lower base, a 20% gain doesn’t put the Nasdaq back near its peak set back in November. In fact, it is still a bit less than 20% below that level.
Historically, the start of a new bull market hasn’t always meant a long-lasting bull market had arrived. From 2000 to 2002, for example, the Nasdaq had multiple upswings of more than 20% that were followed by deeper falls a few months later. It wasn’t until October 2002 that the index entered a bull market that lasted for a few years.
A similar pattern was seen during the 2008-09 financial crisis. The Nasdaq gained 25% from November 2008 to January 2009, but fell 23% from January to March that year before it hit its lowest point during the crisis. It is possible this bull market is another one of those short-lived bounces.
The Nasdaq also tends to be more volatile than the broader market, which makes its swings less meaningful for most investors. Since 1971, the Nasdaq has experienced 19 bull and 18 bear markets. The more closely watched
has seen eight bull and nine bear markets.
Still, if tech stocks’ recent momentum continues, it might be a sign that investors are becoming more confident about the Federal Reserve’s ability to avert a recession while keeping inflation under control.
Write to Evie Liu at firstname.lastname@example.org