By Wong Kon How
A bear market is when a market experiences prolonged price declines or 2 quarters, typically falling 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Has the U.S. market entered into bear? Not yet for the Dow Jones, but yes for the rest of the indices. The key concern is the Russell 2000 as it tracks the broader markets of U.S. companies.
Both Nasdaq and Russell peaked in November last year while Dow Jones and S&P peaked in January this year. S&P has caught up with the bear and declined 20% last week.
What causes today’s bear market? Inflation leading to higher interest rates. Therefore as long as there is no sign of inflation easing anytime soon, the bear of Nasdaq and Russell will likely to continue. They could be a leading indicator for the rest.
But why on the timeframe of 2 quarters to determine a technical bear? With a continuous decline, the market and economy loses momentum and this decreases the chances of a rebound. And as more companies enter into the red, there is also a risk of a contagion effect to the healthy companies.
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