Stocks hit a bear-market low 1 year ago. Time to celebrate?

By William Watts

Happy bull-market birthday, to those who celebrate.

Not everyone was eager to break out the cake and champagne Thursday, which marks the first anniversary of the S&P 500's SPX bear-market low on Oct. 12, 2022. The large-cap benchmark subsequently exited the bear market on June 8, when it closed more than 20% above the October low -- meeting a widely used threshold.

There's no official arbiter of bull and bear markets, but to many mavens the June move above the 20% threshold meant a new bull had begun, backdated to the October low. Some, however, won't recognize a new bull until the S&P 500 takes out its record high set in January 2022, while others have a laundry list of criteria that must be met before they send out the birth announcement.

Regardless, the anniversary offers an opportunity to look back at how the market has performed since the bear-market low. Needless to say, for those inclined to call it a bull market, it isn't the strongest start.

In the social-media post below, Ryan Detrick, chief market strategist at Carson Group, notes the S&P 500 has seen the weakest first-year performance for a baby bull since the recovery from the 1987 stock-market crash:

The 22.4% gain compares to a 33.5% median first-year advance based on data going back to 1956, Detrick found. Investors might find a silver lining, the strategist noted, in that the S&P 500 rallied 29% in the second year of that post-1987 rally, the strongest ever.

While the stock market has attempted to regain its footing in October, the S&P 500's less-than-10% pullback from its 2023 high set on June 30 probably isn't helping the mood. Some party poopers worry that the bull market may have already ended due to rising interest rates, oil prices and bond yields alongside a strengthening U.S. dollar, noted Sam Stovall, chief investment strategist at CFRA, in a note.

Stovall noted that every S&P 500 bull market since 1949 has ended only after fully retracing its losses from the previous bear market. The current bull has retraced only 83% of its fall.

While Stovall finds that comforting, he notes that the current bull has some characteristics that make it differ from previous bulls.

He listed:

Except for 1987-1988, the Fed was cutting Fed funds rates in year one; now the Fed continues to hike.Since 1982, small-cap stocks rose twice as much in year one as large-caps; not this time around.Diversified and Regional Banks advanced in all baby bulls. This time: Diversified Banks +8.3%, Regionals -41%.The 1947-1948 bull, which ended in year two, gained 19% in year one and recouped a total of 57% of the prior bear before ending; through July 31, this bull has risen by a similar amount, but regained 83%.

Stovall contends the bull has legs. Reinforcing that notion, he said, is the fact there have only been three "bogus bulls" -- a 20%+ gain from a 20%+ decline followed by a drop to lower lows -- since World War II. Also, since 1945 a positive return for the S&P 500 through September led to full-year returns 96% of the time, he noted, while the Dow Jones Industrial Average DJIA has been positive for the full year 94% of the time after a winning nine-month start.

Of course, how an investor feels about the bull market depends on whose company she keeps. The stock-market rally remains driven by a handful of stocks, with megacap tech names leading the way. That's illustrated by a look at the equal-weighted measure of the S&P 500, which is up just over 11% in the last 12 months.

Analysts at Bespoke Investment Group put together the chart below of the 25 best- and worst-performing stocks in the large-cap Russell 1000 RUI since Oct. 12 of last year -- topped of course by AI standard-bearer Nvidia Corp. (NVDA) and its 307.3% one-year return:

They found the average stock in the index is up about 15% over the last year, but the winners shown in the table were all up 90% or more, while the losers were down more than 40%.

"Were you lucky enough to own any of the big winners, and have you managed to avoid the big losers?" they asked.

"While the average stock in the index is up about 15% over the last year, the winners shown are all up 90%+, while the losers are all down more than 40%. Were you lucky enough to own any of the big winners, and have you managed to avoid the big losers?

-William Watts

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10-12-23 1404ET

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