One-Day Market Surges Aren’t Game-Changers

Price spikes are more common in bear markets than in bull markets. This is an important fact to keep in mind, especially when evaluating major market rallies like the one on January 15, which followed optimistic reactions to recent U.S. inflation data.

On that day, the Nasdaq Composite Index (COMP) jumped 2.5%, leading some to claim that the bull market was back on track after a five-week slump that began in early December. However, historical trends suggest otherwise.

Significant one-day rallies have disproportionately occurred during bear markets. Based solely on the January 15 rally, history would suggest that we’re likely in a bear market.

An analysis of the Nasdaq since its inception in 1971, using market cycle classifications from Ned Davis Research, reveals a clear pattern. Over the past 50 years, about 25% of trading days have occurred during bear markets.

If major rallies were distributed randomly, only 25% would align with bear markets. If rallies were a sign of a bull market, that percentage would be even lower.

The reality, however, is strikingly different. Among the 25 largest single-day gains since 1971, 80% occurred during bear markets. Expanding to the 100 biggest rallies, 61% took place in bear markets.

These figures highlight a key characteristic of bear markets: heightened volatility, where sharp gains are often driven by temporary sentiment shifts rather than a sustained recovery.