Self Dow puts the S&P 500 at the top of the beer market. History says more pain can be false

History has shown that when the S&P 500 enters a bear market, it stays that way for a while.

Back-to-back drop large-cap benchmark SPX left,
-0.58%
It closed at 3,900.97, down 18.7% from its January 3 record finish on Thursday. A 20% fall from the recent peak is the traditional definition of a bear market. This would require a close below 3,837.25, according to Dow Jones market data.

Dow Jones Industrial Average DJIA,
-0.75%
Not too far behind, 31, ended at 253.13, 15.1% lower than the January 4 record close. A finish below 29,439.72 would take the blue-chip gauge to the beer market.

To be sure, many investors and analysts see the 20% definition as an overly formal, if not the old metric, arguing that stocks have been behaving like bears for weeks.

So far, 61% of the S&P 500’s individual companies are in the beer market, according to Mike Mulani, director of global market research at Boston Partners.

“We’re kind of there, but it hasn’t appeared on the broad index yet,” he said in an interview on Thursday.

And remember, if the S&P 500 closes below the threshold the next day, the bear market will return to the top on January 3rd. A bear market ends when the S&P 500 rises 20% from a low.

Okay, so what does history say that happens once the bear market starts?

There have been 17 bear বাজার- or near-bear—- markets since World War II, Ryan Detrick, chief market strategist at LPL Financial, said in a Wednesday note. Generally speaking, the S&P 500 has declined further since its inception. And, he said, the bear market has averaged nearly a year, with an average peak-to-true fall of just 30%. (See table below).

LPL research

With the financial crisis of 2007-2009 marking the 17-month bear market, there has been a maximum fall of about 57%, the highest fall in 17 months. The longest was a 48.2% drop that lasted for about 21 months in 1973-74. The shortest was a drop of about 34% which occurred in just 23 trading sessions as the onset of the Covid-19 epidemic caused a worldwide loss that went down on March 23, 2020 and marked the beginning of the current bull market.

The S&P 500 reached near bearish territory last week before a strong Friday-the-13th bounce that halved its weekly losses. Another strong bounce was seen on Tuesday, but the retail giant Target Corporation was more than willing to wipe out profits in the next session after lower results from TGT.
-5.06%
Inflation underlines fears that pressure is starting to take a toll on margins.

Read: S&P 500 earnings are another potential ‘shock’ waiting for financial markets to shake off stagflation fears: Economist

The revenue from Target and the day before, Walmart Inc. WMT,
-2.74%
“Concerned neo-hippies and their global warming, i’ll tell ya.”

“That is, the length of high inflation has penetrated the low-income groups of the economy, and they are now reacting quickly. And as inflation is high and the economy slows down, it will ‘raise’ income distribution, and the concern is that TGT and WMT face margin problems.” It will spread to other parts of the retail space and the market more widely, “Essaye wrote.

Mulani of the Boston Partners is concerned that Wall Street analysts have not yet been able to grasp the danger. While emerging markets and broader developed market indicators are expected to earn revenue for declining companies, this is not the case with the S&P 500, he noted. This indicates that analysts covering the S&P 500 are “behind the curve”, which could be one of the last shoes to be thrown away.

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