Published April 11, 2025
Most commentators talk about a bear market as being a 20% decline from the market’s peak. While that short-hand is an easy measure, it doesn’t accurately describe the features that define a true bear market.
The bear market behaves in a certain way that is clearly different from normal. The past week has given us textbook bear market behavior. The market plunged, becoming deeply oversold with fear off the charts. Then, it staged a ferocious one-day rally of +10%. Sharp rallies like that are the hallmark of a bear market. See the pattern below from the 2008/2009 financial crisis bear market. We have marked the many brief periods where stocks shot higher. In some cases, the move seemed to end the downtrend as happened in November on the chart below.
But the market would plunge again. It would also perform another classic bear market maneuver, retesting the prior low as occurred on March 9th. It was only then that stocks would go on to truly recover and begin to repair the damage.
Zooming out, we can see that the above 6-month chart is only a portion of the more than two-year long process of decline, then rebuild, of that crisis. Stocks resumed more typical behavior after March 2009 with stocks moving up in a more orderly fashion without the +10% zoomies of the bear market plunge period.
Where are we today? This past Wednesday’s market behavior provides the answer far more than any arbitrary percent drawdown calculation. Eventually, one of these powerful surges will “stick” and the subsequent drops will be quickly bought, thus keeping the market mostly ticking upward in the typical stairstep pattern. Then, we will know we have emerged from the bear’s grasp.
Market Update
Stocks recovered from the prior week’s plunge in week marked by exceptional volatility. Unconfirmed reports Monday that President Trump would pause the tariff implementation sent stocks sharply higher for about 15 minutes before the rumors were squashed. Stock indexes ended the day down only -0.2%. Stocks opened Tuesday back at Monday’s highs (+4%) before spending the day in a steady downward fall to end down -1.6%, a massive -6% downward swing. Interest rates oddly ticked higher for a third straight day, recouping ground given up during the prior week. The VIX “fear” index soared reflecting the extraordinary uncertainty in the markets. Interest rates gapped higher Wednesday as U.S. Treasury bonds were sold, an unusual occurrence given the high volatility in stocks. Treasury bonds are typically the primary “safety” asset when risk markets are nervous. Concern about the action in Treasury bonds appeared to force the Administration to back off “reciprocal” tariffs with a mid-day announcement pausing those tariff escalations for 90 days, though raising the levy on Chinese goods. Stocks breathed a huge sigh of relief vaulting upward to close +10-12% higher Wednesday. Investors sold into the rally Thursday pushing stocks back down -3.5% as retaliatory tariffs from China continued to heighten the trade war rhetoric. Interest rates held firm despite the Trump pause. Friday brought the first earnings reports of the season with banks posting strong results. Interest rates rose again while the U.S. dollar continued to lose ground. Stocks recovered by +1.8% to close the week on a positive note.
A furious short-covering rally Wednesday fueled stocks to a solid weekly gain. The S&P 500 (SPY) rallied +5.67% while the Nasdaq 100 (QQQ) posted a +7.51% rise. Small cap stocks (IWM) managed only a +1.75% recovery this week.
Warm wishes and until next week.