The bear market for U.S. stocks may have ended at its mid-June low. It may be half over. The biggest losses may or may not be yet to come if the second half of the bear market is still ahead of us. The only reason to point out these otherwise trivial truths is to counter the endless attempts on Wall Street to slice and dice market data. Most of the attempts are statistically suspect data mining, revealing more about the analyst doing the mining than the market itself.
A number of recent posts on social media have argued that the worst of the bear market is yet to come. Bear market losses tend to be back-end loaded, with bear markets ending with a crescendo rather than a whimper.
There are two flaws with this line of thinking. The average on which it is based is calculated from a small sample, since there haven't been many bear markets in the U.S. history. The Bear Market Calendar has 11 bear markets since 1980 in the bear market calendar maintained by Ned Davis Research. In four of them, the Dow Jones Industrial Average DJIA, lost more in the first half than in the second. While it's true that the average bear market has its losses back-end loaded, it is a low probability bet that this will continue to be true in the future.
The second, more basic flaw in this line of thinking is that the current bear market is still in its early innings, based on an unspoken but crucial premise. That premise is exactly what we don't know.
The Dow lost more than the first half during the nearly six month decline from the market's January high to its mid-June low. That tells us nothing about whether the bear market is over or still has a long way to run.
There is a fact that there is a change in tone among analysts that I see as more significant in this line of thinking. In contrast to earlier analyses which tried to put an optimistic spin on the market's losses, the emerging tone is more pessimistic. Instead of concluding that the worst is behind us, we are told that the worst is ahead of us.
This shifting mood suggests that we are further along on the five stages of bear market grief that I discussed in recent columns. As recently as late July, I judged Wall Street's mood to be in the third of those five stages — bargaining — with depression stage 4 and acceptance stage 5 yet to come. The pessimistic mood that is beginning to dominate social media is typical of stage 4 grief — which means we are closer to the last gasp of the bear market from a contrarian point of view.
We are not there yet, so it would be premature to celebrate this latest pessimistic turn. The market still has to face this emerging depression and then go through the acceptance stage. My hunch is that we are in a bear market rally and the June lows will be broken.
Mark Hulbert is a regular contributor to MarketWatch. He can be reached at mark hulbertratings.com