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Wall Street’s traditional definition of a bear market is facing fresh scrutiny as sharp swings in technology stocks complicate how investors read market direction. A 20% decline from a recent peak has long served as the standard threshold. However, several AI-linked markets have crossed that line while remaining sharply higher for the year.
The debate comes as US stock futures fell Wednesday amid rising Treasury yields, higher oil prices and renewed US-Iran tensions. The 10-year Treasury yield reached about 4.81%, its highest level since November 2023, adding pressure on technology stocks.
The Philadelphia Semiconductor Index and South Korea’s KOSPI entered bear-market territory in July after falling at least 20% from recent highs. Even around their lows, the two indexes remained up by nearly 46% and 25% for the year, respectively.
Their performance has raised questions about whether the 20% rule accurately describes markets that previously recorded rapid gains. Semiconductor stocks have benefited from strong demand tied to artificial intelligence infrastructure, while large technology companies continue to spend heavily on AI.
"It's kind of lazy nomenclature to be using on things that are that volatile," B. Riley Wealth chief market strategist Art Hogan said, questioning whether the traditional terminology fits highly volatile markets.
Interactive Brokers chief strategist Steve Sosnick also questioned the standard definition. He said the labels may work better for broad markets than indexes such as the SOX and KOSPI after their rapid rallies.
Meanwhile, immediate market conditions remained weak Wednesday. Dow Jones futures fell about 0.1%, while S&P 500 futures declined around 0.2%. NASDAQ 100 futures dropped roughly 0.6%, extending pressure on technology shares.
The 10-year Treasury yield climbed above 4.81%. Higher yields can weigh heavily on growth stocks because they increase borrowing costs and reduce the present value investors place on future corporate earnings.
Oil added another source of pressure. West Texas Intermediate crude traded above USD 90 per barrel as renewed military exchanges between the US and Iran raised concerns about energy supplies. Higher energy prices could keep inflation elevated and affect expectations for Federal Reserve policy.
Global markets also weakened. Japan’s Nikkei 225 closed 2.85% lower, while South Korea’s KOSPI fell 4%. Major European stock indexes also traded lower.
Some market strategists say duration, volatility and economic conditions could provide more useful signals than a fixed percentage decline.
"A bear market needs to be sustained over multiple weeks or months for confirmation," TradeStation global head of market strategy David Russell said. He added that broader forces, including high interest rates and a weakening economic cycle, should also form part of the assessment.
Sosnick proposed another approach based on historical volatility. Under his measure, a decline would need to exceed an index’s annualized one-year volatility before qualifying as a bear market. For the semiconductor index, that could require a drop of more than 44%.
Such measures could help distinguish a temporary correction after a steep rally from a broader downturn.
Strong corporate earnings continue to support the AI trade despite the recent market weakness. Earnings for the S&P 500 semiconductor and equipment industry are estimated to rise at least 114.7% this year, according to LSEG-compiled estimates.
Dell Technologies also jumped more than 9% in premarket trading Wednesday after raising its annual revenue forecast amid strong AI server demand. Broadcom, Snowflake and Hewlett Packard Enterprise are among the technology companies scheduled to report earnings after the closing bell.
Investors are therefore facing conflicting signals. Technology indexes are experiencing sharp declines, while AI-related earnings remain strong and several indexes still hold large yearly gains. The combination has placed greater attention on volatility, earnings, economic conditions and the duration of market declines rather than the traditional 20% bear-market threshold alone.
