Thus, according to these statistical definitions, we are still embroiled in a bear market, which began its transition from a bull market in 2000 and began in earnest in 2001. Certainly, you can always make the case that below the surface certain sectors are bullish or bearish in a contrary way to the overall market. That will be frequent and the source of outperformance for the agile and astute investor, as has been the case from 2004 to 2006.
We are now in the sixth year of a bear market. In fact, this current bear market is the longest and deepest on record, despite the absolute positive returns in 2003 through 2005. I am willing to make the argument that it is the bear market that is now engaged in its last violent downward push at the current moment. For the balance of 2006, we should expect some countertrend rallies and failures mostly accentuated with volatility.
Beyond 2006
As with most other definitions of market environments, it is difficult to know when you will transition or turn. That said, counting on a bear market continuing beyond 2006 might be the wrong bet. I will say this: If you look at the three-year returns after a bear market has ended according to my criteria, the gains were outsized. I would not be surprised to see the SPX score average double-digit returns in 2007 through 2010. This will be kicked off when we have the Fed over and done with once and for all, which is highly likely before 2006 is over.
Editor's note: This column by Scott Rothbort is a special bonus for TheStreet.com and RealMoney readers. It first appeared on Street Insight on June 16 at 8:18 a.m. EDT. To sign up for Street Insight, where you can read Rothbort's commentary in real time, please click here.
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At the time of publication, Rothbort was long SPY, although positions can change at any time.
Scott Rothbort has 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers both individually managed accounts and a hedge fund to its clientele. Prior to that, Rothbort worked at Merrill Lynch for 10 years.
Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is an adjunct professor for the Stillman School of Business at Seton Hall University.
He appreciates your feedback; click here to send him an email.
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