The Nasdaq Composite and Russell 2000 indices are each down by 13.3% from their 2006 high-water marks, but only the Nasdaq qualifies for bear market designation by the gauge I prefer to use. It is derived from a standard employed by the business-cycle dating committee of the National Bureau of Economic Research (NBER): the 3-D metric of depth, duration and diffusion.
Only the Nasdaq indices, both the Composite and 100, have qualified for the fur coat, since only they -- and not the more broad-based indices -- lie below their (declining) 200-day moving averages. The dive of the Russell 2000 has some serious depth to it, but it hasn't stayed down deep long enough to depress its 200-day trailing average to meet the duration standard.
The NBER approach is a useful filter for screening the cyclical dynamics of volatile processes, such as freely trading markets or free-market economies. Other bear market standards are in wide use, such as down 10% or 20% rules, but short-term spasms of panic can pass these tests. A real bear market measure, it seems to me, ought to take into account the unique pain of persistent, relentless losses.
| A Nasdaq Bear Market by 3-D Standard |
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These last three months of market pain have left the broader indices off by only 4% to 8% against their prior highs. That surprised me when I checked; it has felt a lot worse than that, and sentiment seems much more morose than is justified by a nickel- or dime-sized setback. The bark, so far, has been worse than the bite, but that is hardly reassuring.
Recession has once again taken a place in market chatter. The market's mood; the slide into slump by the housing sector; the yield curve's on-again, off-again flirtation with inversion; the Fed's campaign (unpunctuated until last week) to reel in the monetary line it had previously played out -- all make good talking points for the recession case. Nevertheless, I don't find them convincing.
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