(Reuters) – The stock index, 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 bear market.
Fears that the Federal Reserve’s decades-old war against high inflation has pushed the US economy into deflation, sending the US stock market down in 2022.
With the Nasdaq already down about 23% and 32%, respectively, from their record highs, the confirmation that the Dow is in a bear market is just the latest milestone in the market turmoil in 2022.
While the Dow, which includes only 30 large companies, is a much narrower index than the other two, it is historically what Main Street watches most closely.
On Wall Street, the terms “bullish markets” and “bears” are often used to describe broad upward or downward trends in asset prices. Many investors use the terms loosely, and analysts don’t always share the same specific definitions, particularly about when the end of a bear market is called.
In fact, for professionals, these are just less important signs than basics such as company earnings, its valuation, interest rates and economic conditions.
Some investors specifically define a bear market as a decline of at least 20% in a stock or index from its previous peak, with the peak marking the beginning of a bear market, which is recognized only too late after a 20% decline.
Similarly, some define a bull market as a 20% rise from a previous low. However, the S&P Dow Jones Indices, which run the S&P 500 and Dow Jones industrial indexes, have a more precise definition.
A decline of 20% or more from the highest level, followed by gains of 20% from that lower level, would leave the index below its previous peak, a situation that Howard Silverblatt, chief analyst at S&P Dow Jones, describes as “a bullish rally in a bear market.” “.
In fact, investors can only be sure of being in a new bull market once a new high is reached, at which point the previous low will signal the end of a bear market and the beginning of a new bull market, according to the S&P Dow Jones Indexes.