Trying to identify when a bear market has ended and a new bull market has taken its place can be maddening. Fortunately, there are a few sign posts along the way that you can watch for to confirm that a new bull market has begun.
[VIDEO] Anatomy of the Beginning of a Bull Market
According to Money magazine, the following events typically take place shortly after a new bull market has begun:
– Consumer confidence finds a bottom
– The recession ends
– Corporations see a recovery in their profits
– The end of the recession is officially announced
Of course, identifying these sign posts won’t allow you to go back in time and put all of your money into the market at the beginning of the bull market, but knowing when the bear market has ended can help you in your transition back into the stock market.
Consumer Confidence Finds a Bottom
One of the first things that typically happens once the stock market finds a bottom and begins to rebound is consumer confidence finds a bottom.
Now, finding a bottom usually means hitting a new low—which means we often see the stock market find a bottom before all of the bad news from consumers is out.
Because the stock market is always looking forward, the bottom of the stock market tends to come before the end of the recession. On average, recessions tend to end three to four months after the stock market has found a bottom—which was March 9, 2009 on the S&P 500, if we truly are in a new bull market.
Corporations See Recovery in Profits
It seems odd that stock prices, which are theoretically based on corporate profits, would begin to rise before seeing a rise in corporate profits, but as we mentioned above, the stock market is always looking forward.
If stock investors see an increase in earnings on the horizon, they will try to be the first in line to buy the stock before everyone piles in an pushes the price of the stock higher. This typically happens seven months into a new bull market.
End of the Recession is Officially Announced
One of the last road signs you should be looking for to confirm that a bull market has begun is the official announcement that the recession is over.
Once you hear this announcement, you have most likely missed up to one-third of the total upward movement the bull market will enjoy.
Of course, catching two-thirds of a bull market can make you a lot of money, but being too conservative and waiting for the official announcement from the National Bureau of Economic Research (NBER) that the recession is over can cost you additional profits.