How Are New Bulls Born?

Characteristics of a new bull market

It has been over seven months since the October lows, and during this time, the S&P 500® has rallied over 19%. Naturally, investors are pondering whether this marks the beginning of a new bull market. In this report, we aim to take an objective approach to determine if historical patterns can guide us in assessing the current situation. Spoiler alert: While it is certainly possible for this rally to evolve into a full-fledged bull market, historical precedent suggests it is far from a foregone conclusion. Here are some key takeaways from history:

1. No definitive technical thresholds: There are no specific technical indicators that serve as magical signals for a new bull market. It is not as simple as crossing a specific threshold to confirm the start of a bull market.

2. Breadth indicates strength: A broad-based rally with a wide range of sectors and stocks participating indicates a stronger foundation for a potential bull market.

3. The market leadership of bounces tends to be backward looking: The composition of a market bounce primarily reveals information about the past rather than the future.

4. Fundamentals matter: Rallies cannot transform into bull markets without support from underlying fundamentals.