There is no bull market yet, and mainstream media announcements are premature. I propose a more robust metric for deciding when a new bull market starts after a correction.
The mainstream financial media rushed last week to announce a new bull market. This was based on the S&P 500 gaining 20% from its 2022 lows.
Just as a hypothetical exercise, imagine a high-capitalization stock in the S&P 500 index rising 1000% for some reason after a large correction. The index could rise considerably and rebound by more than 20% some analysts use to declare the start of a new bull market. However, most of the stocks will remain near their correction lows. It may make no sense to use capitalization-weighted indexes to decide whether a new bull market has started. Below is a comparison of the market-capitalization weighted S&P 500 and the equal-weighted total return indexes from the bottom of October 12, 2022, to June 13, 2023.
The S&P 500 total return has gained 23.6%, but the S&P 500 equal-weighted total return has gained only 16.5%.
Furthermore, 263 stocks are still more than 20% below their all-time highs, and the average drop of all stocks in the index is -26.3%. The median drop from all-time highs is -21.7%.
Below is the new measure I propose for deciding whether there is a new bull market after a large correction:
Median drop from all-time highs of S&P 500 constituents: > -20%
Although there may be objections, I believe this is a more reasonable measure that takes into account market breadth. Possibly, it has been proposed before.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data