The Dow is in a bear market. What does that mean?

Content of the article

The Dow Jones Industrial Average, the oldest of Wall Street’s three major stock indexes, fell 1.1% on Monday, extending its decline from its January peak to more than 20%, meeting a common definition of a market. bearish.

Fears that the Federal Reserve’s decades-long war on high inflation could push the US economy into a downturn sent the US stock market plummeting in 2022.

Content of the article

With the S&P 500 and Nasdaq already down around 23% and 32%, respectively, from their highs, confirmation that the Dow is also in a bear market is just the latest leg of the market turmoil. in 2022.

Content of the article

While the Dow Jones, with just 30 large-cap companies, is a much narrower index than the other two, it’s historically the one Main Street watches more closely.

On Wall Street, the terms “bull” and “bear” markets are often used to characterize major upward or downward trends in asset prices. Many investors use the terms loosely, and analysts don’t always share the same specific definitions, especially on when to call the end of a bear market.

Indeed, for professionals, they are only less important labels than fundamentals like corporate earnings and valuations, interest rates and economic conditions.

Some investors define a bear market specifically as a decline of at least 20% in a stock or index from its previous high, with the peak defining the start of the bear market, which is only recognized with the decline after the 20% drop.

Content of the article

Similarly, some define a bull market as a 20% rise from a previous low. However, the S&P Dow Jones Indices, which administer the S&P 500 and the Dow Jones Industrial Average, have an even more nuanced definition.

A decline of 20% or more from a high, followed by a 20% gain from that lower level, would leave an index still below its previous high, a situation that Howard Silverblatt, principal analyst at the S&P Dow Jones Indices, described as a “bullish rally in a bear market.

This is because investors can only be sure that they are in a new bull market once a new high has been reached, and at that point the previous low would mark the end of the bear market and the beginning of the new bull market, according to S&P. Dow Jones indices.

(Reporting by Noel Randewich; Editing by Alden Bentley and Nick Zieminski)