Stocks rose just enough for Wall Street to barrel into a new bull market on Thursday as the S&P 500 keeps rallying off its low from last autumn.
The index rose 0.6 per cent to carry it 20 per cent above a bottom hit in October.
That means Wall Street’s main measure of health has climbed out of a painful bear market, which saw it drop 25.4 per cent over roughly nine months.
The Dow Jones Industrial Average added 168 points, or 0.5 per cent , on Thursday.
The Nasdaq composite, meanwhile, led the way with a 1 per cent rise.
That has been the norm so far this bull market, as chip maker Nvidia and a handful of other big tech stocks have been responsible for the lion’s share of Wall Street’s gains.
Declaring the end of a bear market may seem arbitrary, but it offers a useful marker for investors.
It also provides a reminder that investors able to hold on through downturns have nearly always made back all their losses in S&P 500 index funds eventually.
Even though it was driven by so many superlatives – the worst inflation in generations and the fastest hikes to interest rates in decades, for example – this most recent bear market lasted only about nine months.
It stretched from January 3 2022, when the S&P 500 set a record, until October 12, when it hit bottom.
That is shorter than the typical bear market, and it also resulted in a shallower loss than average.
“In hindsight, it might not look that bad, but it certainly feels bad in the moment,” said Brent Schutte, chief investment officer at Northwestern Mutual.
What made last year even more painful for investors is that both stocks and bonds lost money, he said, something that has not happened in decades.
Much of this bull market’s gains have been because the economy has refused to fall into a recession despite repeated predictions for one.
It has withstood the highest interest rates since 2007, three high-profile collapses for US banks, another threat by the US government of an economy-shaking default on its debt and a series of other challenges.
“Bottom line, the economy has been very resilient,” said Anthony Saglimbene, chief markets strategist at Ameriprise Financial.
“So much negativity was built into the market,” he said.
“While it’s too early to know this for sure, stocks look like they’re doing what they normally do when all the negativity has been discounted into the stock market: they start moving higher in anticipation of better days ahead.”
Not only has the economy avoided a recession because of a remarkably solid jobs market and spending by consumers, hopes are also rising that the Federal Reserve may soon stop hiking interest rates as inflation has come down from its peak last summer.
High rates work to undercut inflation by slowing the entire economy and dragging on prices for stocks and other investments.
The broad expectation among traders is that the Fed will hold rates steady next week, which would mark the first meeting where it has not raised rates in more than a year.
While it may hike rates one more time in July, the hope on Wall Street is that it will not go beyond that.
Inflation has been coming down from its peak last summer.
But many challenges still remain for the stock market.
Chief among them is that no-one can be sure about when the Fed will be done hiking rates.
Even if inflation has been coming down, it has remained stubbornly above the Fed’s comfort level and is still causing pain for all kinds of households, particularly ones with lower incomes.
That has some investors continuing to prepare for a coming recession, even if they keep pushing out predictions for when it will arrive by a few months.
“It’s been an odd and uneven recovery” coming out of the recession caused by the Covid pandemic, Northwestern Mutual’s Mr Schutte said.
“It’s been an odd and even push into recession.”
Another warning sign for sceptics is how much of the S&P 500’s gains have been concentrated this year within just a handful of stocks.
Hopes for a pause by the Fed have helped big, high-growth stocks in particular.
Investors see them benefiting the most from easier interest rates because that is what has happened in the past.
Add on top of that euphoria around artificial intelligence fanned by last month’s tremendous sales forecast by Nvidia, and just seven stocks have been responsible for the majority of the S&P 500’s gain this year.
Nvidia, Apple, Microsoft and other Big Tech giants have so much influence on the S&P 500 because they are the biggest, and the index gives more weight to stocks based on their size.
Nearly half the stocks in the S&P 500, meanwhile, are down for the year so far.
Thursday’s gains for the S&P 500 offered a good example.
It rose largely because of Big Tech, which gained as expectations built for the Fed to take a pause on rates next week.
That was because a report showed the highest number of US workers applied for unemployment benefits last week since October 2021.
It helped push against pressure that may have built for tougher policy after central banks in Canada and Australia hiked their own rates recently.
But the S&P 500 was nearly split between winners and losers.
Smaller stocks in the Russell 2000 index, meanwhile, slipped 0.4 per cent .
The arrival of a bull market also does not mean the stock market has made it back to its prior heights.
Because of maths, a 25 per cent drop for the S&P 500 requires a 33 per cent rally to follow in order to just get back to even.
GameStop was one of Wall Street’s bigger movers on Thursday, falling 17.9 per cent after ousting its chief executive who was brought in to turn around the struggling video game retailer.
The company, whose stock became a sensation in 2021 during the meme-stock craze, also reported weaker revenue for the latest quarter than expected.
Adobe rose 5 per cent for one of the biggest gains in the S&P 500 after it announced a new artificial intelligence offering for businesses.
It joined the AI frenzy that supporters say will be the next revolution to remake the economy.
Critics say it is inflating the next bubble.
All told, the S&P 500 rose 26.41 points to 4,293.93.
The Dow gained 168.59 to 33,833.61, and the Nasdaq rose 133.63 to 13,238.52.
After the unemployment data hit the market, Treasury yields gave up gains from earlier in the morning.
The yield on the 10-year Treasury fell to 3.71 per cent from 3.78 per cent late on Wednesday.
It helps set rates for mortgages and other important loans.
The two-year yield, which moves more on expectations for the Fed, fell to 4.51 per cent from 4.55 per cent .
Press Association – Stan Choe, Associated Press