The Nasdaq is flying but are we in a bull market or not?

The Nasdaq is the best-performing major equity index so far this year, after being the worst in 2022, so many investors might think a new bull market is underway.

What's more, old Coppock seems to suggest a new bull market has begun. 

But analysts say it is not so simple, especially if you take a closer look at the 12 bear markets in the US index since 1971.

On average, Nasdaq bear runs last almost a year (340 days) and result in a 38% reduction of the index’s value. 

Major stock market index performance 2022 and 2023

Best so far in 2023 (to 8 May)

1. NASDAQ Composite 17.1%
2. DAX 14.3%
3. CAC-40 14.0%
4. Nikkei 225 10.9%
5. Euronext 100 10.5%
6. S&P 500 7.8%
7. FTSE All World 7.4%
8. SSMI 7.2%
9. TSX-60 6.3%
10. Shanghai Composite 4.9%
11. FTSE 100 4.0%
12. Hang Seng 2.6% 
13. Dow Jones Industrials 1.4% 
14. BSE 100 0.8% 
15. Bovespa (6.9%)

Best in 2022

1. Bovespa 4.7%
2. BSE 100 4.5%
3. FTSE 100 0.9%
4. Dow Jones Industrials (8.8%)
5. TSX-60 (9.2%)
6. Nikkei 225 (9.4%)
7. CAC-40 (9.5%)
8. Euronext 100 (9.6%)
9. DAX-30 (12.3%)
10. Shanghai Composite (15.1%)
11. Hang Seng (15.5%)
12. SSMI (16.7%)
13. FTSE All World (19.3%)
14. S&P 500 (19.4%)
15. NASDAQ Composite (33.1%)

Source: AJ Bell, using Refinitiv data. Capital return in local currency.

Commonly accepted definitions of a bull market vary: it can be when share prices rise by 20% after two declines of 20% each, or a market that rises over time without falling more than 20% from its peak during the period, or that a bull market only begins once it rises 20% from its bear-market low.

The Nasdaq is currently still around 24% below its 2021 peak.

So it could easily be argued that tech stocks are still mired in a bear market, says analyst Russ Mould at AJ Bell.

"Anyone who remembers the Nasdaq’s collapse of 2000-2003, after the dizzying bull market of 1998 to 2000, may be inclined to proceed with caution," Mould said.

Not only is highly unusual for the leaders in the last bull market to be the leaders in the next one, "the bear market usually ends when all hope has been abandoned", but Mould also notes that the S&P 500 has gained US$2.4 trillion in market cap so far in 2023 and just six stocks (Meta Platforms, Amazon, Apple, Netflix, Alphabet and Microsoft) have two thirds of that gain.

"It is open to debate how (un)healthy it is to be relying so heavily on such a select list of names, no matter how formidable their business models may look today," he says,

What's more, during the 2000-2003 bear market for the Nasdaq, the index enjoyed nine 'mini' rallies ranging from 8% to 45%, lasting between 11 to 105 days and making aggregate gains of 4,886 points, but yet overall from peak to trough the index still fell by 3,935 points and took another 12 years, until May 2015, to get back to its March 2000 peak.

The Nasdaq bull market this time around is perhaps "even more egregious" than the one from the noughties, says Mould, given the enthusiasm for meme stocks, SPACs, initial public offerings and Sam Bankman-Fried.

However, the run from last year's low is already 132 days old, he says, "so the good news is it already has more longevity than any of the 2000-2003 rallies".

"That may encourage investors to think that Nasdaq’s last pullback is more akin to the short, sharp bear markets of 1978, 1980, 1987, 1998 and 2020 rather than the soul-crushing slumps of 1973-74, 2000-02 and 2007-09 which saw the index lose 60%, 78% and 56% of its value respectively."

The current slump is, at 536 days old, longer than the 340-day average of the dozen bear markets since the early 1970s, with a 24% trimming of the benchmark's froth, compared to the 38% average.

NASDAQ bear markets since 1971

Source: Refinitiv data

This will include those of a sceptical bent to see worse to come.

What's more, the worst downturns have come after the most rampant advances, Mould notes, with the index’s addition of 9,196 points in just 606 days in its last bull run looks like "a classic blow-off top".

But the fact is that tech stocks are rallying.

Whether this is because investors see the falls last year as making valuations more attractive, or that with a recession seen to be looming, that people are looking to put their money in these proven tech giants for their reliable earnings and cashflows.

There's also the prospect of interest rate cuts later in the year that may be tempting some to move their money in preparation for a return of low interest rates.

NASDAQ bull markets since 1971

Source: Refinitiv data

“If the world returns to the low-interest-rate, low-growth, low-inflation mire which characterised the 2010s and early 2020s then you can see why tech could excel again, because such an environment places a premium on any firm that is capable of producing secular growth," says Mould

“Equally, if a 40-year era of cheap energy, cheap money, cheap labour and cheap goods is over, and higher inflation and higher rates are with us to stay, then it is more difficult to argue that what has worked before will work again, simply because the environment will be so different."