As the stock market continues its upward trajectory in 2023, there remains uncertainty and differing perspectives among market participants. Bulls argue that the recent rally from the October lows signifies a new bull market, backed by the fact that the market has risen over 20% from its 2022 lows. Conversely, bears point to the narrow leadership in the market, where gains are concentrated in a few stocks, suggesting a bear market bounce.

So, what is the true nature of the current market? Are we poised for new highs, or is this merely a bear market rally?

Bull Case

Length of Recovery: A bear market rally is defined as a temporary and short-term upward movement in prices within an overall bearish or declining market trend.  The ongoing rally from the late September lows has now lasted eight months. For historical context, the longest bear market rally in history spanned from late March to mid-November 1938, lasting over seven months.

So, either we are in a new bull market trend, or this would have to be the new longest bear market rally in history. 

Size of the Recovery: Examining previous bear markets reveals that bear market rallies are regular occurrences within a broader downtrend. These rallies typically range from higher single-digit bounces to low double-digit bounces. In the 2007-2009 Bear Market, for instance, while there was a 24% bounce at the end, most of the rallies were more subdued before the eventual recovery. 

During the 2000-2002 bear market, there was a notable rally that reached 21%. However, it is important to consider the broader context of this bear market. As the recovery from the lows was underway, the tragic events of 9/11 unfolded, causing a significant shift in market dynamics. The aftermath of 9/11 reset the trend downward for stocks as the United States grappled with an entirely new set of circumstances.

Lastly, the 1973-1974 bear market experienced its largest rally, which reached 11% which pales in comparison to the rally we have just experienced.

(Source: MoneyShow)

Bear Case

Breadth of the Market / Narrow Leadership: While the S&P 500 has displayed a rebound, a closer analysis reveals that the driving force behind this recovery lies in the high-growth stocks, specifically Apple, Microsoft, Amazon, Google, Tesla, NVIDIA, and META. These stocks have exerted significant influence, accounting for over 27% of the entire index.

To better understand the market dynamics, let’s compare the S&P 500 to an equal-weighted S&P 500. The S&P 500 is a market cap weighted index, meaning that larger companies hold a greater share in the index. However, when we equally weight the same 500 companies, the return for 2023 is nearly 10% lower than that of the total index.

(Source: Y-Charts)

Bulls argue that the rest of the market has the potential to catch up, thus continuing to drive the overall market upward. On the other hand, bears contend that once the momentum of these top seven names wanes, the broader market will stagnate and begin declining once again.


While only time will reveal the ultimate direction of the market, historical analysis can guide us in assessing whether this is a bear market rally or the start of a new bull market. The bull case suggests sustained growth in technology stocks or the potential for the broader market to catch up. On the other hand, the bear case argues that the rally could eventually give way to a new record for the longest bear market rally. Our speculation lies somewhere in between, where the market may take a breather from its recent surge but not necessarily erase all the progress made since the 2022 lows.

It is important to remember that financial media often amplifies extremes, portraying a binary narrative of reaching new highs or reverting to prior lows. Without a crystal ball, it is advisable to remain disciplined in one’s investment process and adhere to a well-defined strategy.

Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser

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