Whether or not we're already in a bull market depends on your definition of what a bull market is. To those who define a new bull market as a 20% gain from a bear market low, yes, the S&P 500 technically began a new bull market last month. Others are looking for a few more signs that the current rally's got long-term legs (like setting new all-time highs).
One thing is for sure, though. This could be the beginning of a new bull market, and we'll definitely be starting a new one sooner or later.
That's a prospect that's too big to ignore, especially if you're still on the sidelines holding tons of cash and not a lot of (or any) stocks. You're seemingly avoiding risk, but the bigger risk right now may actually be not being fully invested.
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By the numbers
Don't misread the message. It's still possible that the S&P 500 will end up giving back all its recent hard-won gains. The Federal Reserve just effectively told us two more rate hikes are coming later this year. But it doesn't exactly feel like the economy's on a firm enough footing to stand up to the effect of higher interest rates.
On balance, however, the bigger risk remains in waiting for ironclad evidence that everything is perfectly fine. Bull markets have a way of sneaking up on you when you're not expecting them. Moreover, the earliest days of a new bull market are often the most explosive.
Take data dug up by mutual fund company Hartford, for example. The company's research finds that the S&P 500's average gain during the first month of a bull market is nearly 14%, while the typical gain during the first three months of a new bull market is more than 25% ... before it's clear a new bull market is even underway. Put in slightly different terms, Hartford's numbers also indicate that 34% of the market's biggest single-day gains take shape during the first two months of a bull market.
Of course, if we've already begun a new bull market, it seems we've already reaped those early gains. Don't be too discouraged by that prospect, though. While you can't go back in time and reap them, you can -- and should -- go ahead and plow in. The rest of Hartford's data indicates that the first half of new bull markets (74% of the bull markets since 1928, to be precise) are usually more rewarding than the second half of bull markets.
That factoid jibes with research from financial advisor support company Carson Group's Chief Market Strategist Ryan Detrick. Detrick notes that 10 of the last 13 times stocks rallied 20% off a 52-week low, a year later they were up an average of another 17.7%. Indeed, just six months following such a 20% gain, the S&P 500 was already up another 12.2%, on average.
The three exceptions, by the way, were a couple of slipups during the tech implosion of 2000 and 2001, and one headfake during 2008's mortgage meltdown.
Just hold your nose, dive in, and don't look back
Never say never. This 20% gain from a major low may well prove to be an exception to the norm and defy the odds. It's possible the market could be lower than it is now within a few months.
As an investor, however, a big part of your job is realistically weighing risk and reward. Right now -- particularly following last year's rout -- the risk of meaningfully more downside is relatively smaller than the risk of missing out on more upside.
That's the case even if you're simply holding out for one more good correction to use as an entry point. A bunch of people have been waiting for such a dip for weeks now, and have yet to see it ... perhaps because it's just not in the cards.
