The Bear Market Ended Today -- At Least by This Measure

Investors have been looking for clarity on the likely direction of major stock indexes for months now, particularly in light of all the macroeconomic and geopolitical challenges going on. Yet even with plenty of reason for worry, bullish investors have had the upper hand, and the same held true on Thursday. The Nasdaq Composite (^IXIC -0.64%) once more led the way higher, but the S&P 500 (^GSPC -0.46%) and Dow Jones Industrial Average (^DJI -0.98%) managed to post solid gains of half a percent or more on the day.

Data source: Yahoo! Finance.

Figuring out when a bear market ends and a bull market begins is always elusive, and it's the sort of thing that becomes much clearer in hindsight than it is in the moment. By one mathematical standard, however, the S&P 500 entered a new bull market on Thursday, and that has some investors anticipating further short-term gains as the mood on Wall Street improves. Below, you'll learn more about exactly what brings a bear market to an end and why today was the day.

The bear is dead. Long live the bull

The S&P 500 hit its all-time closing high of 4,796.56 on Jan. 3, 2022. At that point, many high-flying growth stocks, particularly in the tech arena, had already started to decline from their record levels. However, it took longer for that weakness to work its way into the broader market, particularly among the mega-cap stocks that have the biggest impact on the index. A steep correction of more than 10% came during January 2022, followed by further volatility throughout the ensuing months.

Image source: Getty Images.

The traditional mathematical definition of a bear market is a drop of 20% or more, which implied that the S&P 500 would have to close below 3,837.25 in order to trigger the end of the bull market that had started at the pandemic lows in March 2020. That happened on June 13, 2022, as high levels of inflation made it clear that the Federal Reserve would have to stay aggressive in raising interest rates longer than most investors had hoped. After a strong rally in July and August, stocks once again turned bearish in September and hit their closing low for this downward cycle of 3,577.03 on Oct. 12.

Conversely, many would define a new bull market as being a 20% rise from whatever the bear market low turned out to be. Using that 3,577.03 figure, that suggested that the S&P 500 needed to close above 4,292.44 to confirm the end of the bear market. That's what happened today, as the final close of 4,293.93 just barely cleared the bar.

With that, one can tally some final figures from the 2022 bear market. Measured from Jan. 3 to Oct. 12, it lasted just over nine months, which is fairly typical. Peak to trough, the S&P lost 25.4%, which is also fairly representative for a bear market.

What's next?

Bull markets have generally been much longer than bear markets, particularlyin recent history. Two of the past four bull markets have lasted a decade or more: the recovery from the 1987 stock market crash in the 1990s, and the recovery from the Great Financial Crisis in 2008 and 2009. Add in the 2002 to 2007 recovery from the 2000-2002 bear market and the quick bull market bounce from the initial pandemic-induced crash that helped markets move higher from March 2020 to January 2022, and all four of the most recent bull markets have seen the S&P 500 at least double from its bear market lows -- and often generate multibagger returns.

Given all the uncertainty and negative views on Wall Street, it might seem odd to declare the start of a bull market now. Yet that disconnect isn't uncommon, and it's a big part of the reason why long-term investing is far easier than trying to move in and out of the market with short-term trading based on bull or bear trends.