Bull or Bear Market? AI Boom Prompts Rethink of Traditional Market Measures
Key Takeaways
- •A bear market is conventionally defined as a 20% or greater decline from a recent peak, while a bull market is typically a 20% or greater rise from a trough.
- •The Philadelphia Semiconductor Index and South Korea's KOSPI both entered bear market territory in July under the traditional measure.
- •Both indexes are heavily concentrated in a few large-cap names, so their moves can reflect a handful of AI-linked stocks rather than the wider market.
- •The 20% threshold is an informal rule of thumb that has long been criticized for treating all declines the same regardless of their breadth.
- •Analysts are debating alternative indicators such as market breadth measures and comparisons to broad benchmarks like the S&P 500.
Artificial intelligence is prompting investors and analysts to rethink the traditional measures used to classify bull and bear markets, as the conventional yardsticks send conflicting signals about the state of the global technology trade.
Under the long-standing convention on Wall Street, a bear market is defined as a decline of 20% or more from a recent peak, while a bull market is typically marked by a rise of 20% or more from a trough. The 20% threshold is itself a rule of thumb rather than an official designation, and it has long been criticized for treating all declines alike regardless of how broadly or narrowly they are spread across the market. By that traditional measure, two closely watched benchmarks tied to the AI and semiconductor trade fell into bear market territory in July.
The Philadelphia SE Semiconductor Index, a widely followed benchmark for chip stocks, and South Korea's tech-heavy KOSPI both entered bear markets in July, based on the traditional measure. The Philadelphia Semiconductor Index tracks major U.S.-listed semiconductor companies and is often used as a barometer for global chip demand, while the KOSPI is the main stock index of the Korea Exchange in Seoul and is heavily weighted toward technology and electronics firms. Both indexes are heavily concentrated in a small number of large-cap names, which means index-level moves can reflect swings in a handful of AI-linked stocks rather than conditions across the wider market.
The simultaneous slide in these benchmarks has fueled debate over whether the conventional percentage-decline threshold still captures the reality of a market increasingly driven by AI-related investment flows, and whether alternative indicators — such as market breadth measures that track how many stocks are participating in a move, or sector-level comparisons against broad benchmarks like the S&P 500 — may be needed to distinguish between broader market weakness and volatility concentrated in specific technology sectors. How indexes like these behave relative to broader market benchmarks in coming months is likely to shape that discussion.
Source: CNBC-TV18 Markets
