SOX and KOSPI challenge the meaning of a 20% bear market

  • SOX and KOSPI entered bear markets under the traditional 20% decline measure.
  • The indexes remained up 46% and 25%, respectively, at their July troughs.
  • S&P 500 bear markets averaged 289 days, or about 9.6 months, since 1928.

The Philadelphia SE Semiconductor Index and South Korea’s tech-heavy KOSPI entered bear markets in July under Wall Street’s traditional definition of a 20% decline from a peak. Yet even at their lows, they were up 46% and 25%, respectively, for the year after triple-digit gains over the preceding year. The episode is prompting investors and strategists to question whether the standard label adequately describes highly volatile technology indexes that continue to post large daily gains and losses. Art Hogan, chief market strategist at B. Riley Wealth, called the terminology lazy for such volatile assets, while Interactive Brokers chief strategist Steve Sosnick said the labels are more suitable for broad markets than for indexes that have experienced parabolic advances. The classification matters because bear-market language can influence whether investors view a decline as a routine pullback or a fundamental, long-term shift. S&P 500 bear markets have lasted an average of 289 days, or about 9.6 months, since 1928, according to Hartford Funds. Analysts interviewed by Reuters offered alternatives that would consider the duration of a decline, historical volatility, economic conditions and structural market forces. Proposed tools include moving averages and Fibonacci retracement levels, while Sosnick said the decline should exceed an index’s one-year annualized historical volatility. Under that approach, the SOX would need to fall more than 44% to qualify. No replacement definition has gained consensus, and a more nuanced framework could be less straightforward than the current threshold, leaving investors to rely partly on experience and judgment.

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SOX and KOSPI challenge the meaning of a 20% bear market - CoinPost Terminal