Is the bear market over?

If that’s your question, you need to specify. Which bear market? Because there were several last year, and I’m not sure any of them are well and truly over.

As much fun as it is to focus on equities (mostly because commenting on stocks doesn’t require much in the way of expertise, effort or imagination, which explains why everyone’s “first asset” is usually stocks), last year was primarily a rates story, and so far anyway, so is this year.

The front-end volatility witnessed over the past two or three weeks was nothing short of historic. “While the current crisis is in no way comparable to that of 2008, the volatility we now see [is],” SocGen’s Jitesh Kumar wrote last week, calling recent fireworks “a manifestation of the positioning and practices built up over the past 15 years.”

The irony is that the insanity in rates (illustrated two ways above) could well mark the end of what’d be remembered as a short-lived bond bear market. Personally, I have reservations about the notion that inflation will ever settle durably back near 2% and also about the assumption that r-star hasn’t shifted up, which means I’m skeptical that long-end yields are simply going to march dutifully lower and stay low, but that’s a separate discussion.

Anyway, back to stocks. Recall that 2022 was a “crash-less” selloff. There were no days during which the price action in equities suggested the world was ending, even though on some days (e.g., February 24, 2022) the world actually was ending.

You’d be inclined to think that at some point before the end of this bear, the bottom will fall out in earnest. The likes of Morgan Stanley’s Mike Wilson contend it’s just a matter of time before equities price higher growth risks, for example. Plenty of other top-down strategists are likewise concerned, even if their bottom-up colleagues will wait to “hear it from the source,” so to speak, where that means no towel-throwing until management guides for the worst.

The table above from BofA suggests this has been the shallowest bear market of all time, or at least the shallowest those of us younger than 150 can remember.

“Ain’t nothing more dangerous than a bear at the end of a bear market,” BofA’s Michael Hartnett remarked. Although he cautioned stock skeptics (like himself) against being “dogmatically bearish” given that this bear is mature, he nevertheless reiterated the bank’s view that US equities will probably “attempt new lows over the next three to six months.”

Although the bear market has been shallow, it’s also been long. “History says the ‘average’ bear market should have ended October 19 with the S&P at 3,005,” Hartnett went on. “It’s now a longer-than-normal bear market but policy intervention meant the bear was never allowed to be big in price, and the biggest bull market recoveries occur only after the biggest declines.”

No pain, no gain. No omelets without broken eggs. And on and on.