Stocks are still in a bull market and a dismal February didn't doom investors, Ned Davis Research says

• February was a healthy pullback in stocks, and the bull market will continue, Ned Davis Research said.
• The research firm pointed to several indicators that suggest bullish spirits in the market are warranted.

Stocks are still in a bull market, and a dismal performance in February hasn't changed that, according to Ned Davis Research.

"Down Februarys after big up Januarys have been the exception, but they have not usually spelled doom for the rest of the year," the research firm's strategists said in a note on Thursday, pointing to several indicators that suggest stocks are in bull mode.

The S&P 500 lost 2.6% over the last month, giving back some of the January's big gains. Investors were initially bullish after Fed officials began dialing back the size of their rate hikes, but have begun to price in higher interest rates as central bankers signal more increases are likely to come later this year.

The prospect of higher rates and February's losses don't necessarily mean the rally is over, NDR strategists said.

For one, in previous years when the S&P 500 slipped in February after strong gains in January, the stock index still saw a median gain of 13.6% by the end of the year on three out of four occasions.

And since June of last year, the number of stocks that have notched a new one-year low have declined, indicating that selling pressure is shrinking.

Additionally, stocks that have traditionally done well in early bull market cycles, which include small-caps and financial stocks, have continued to do well and are in line with previous bull markets following a non-recessionary bear market. If those market leaders continue to do well, that's a sign February was just a "healthy pullback" of a bull market, rather than stocks falling back into a bear market.

"Pullbacks are common at this point in the year, election cycle, and post-echo bulls," Ned David strategists said, adding that if indicators continue to pull through, the rally in stocks could continue into the second half of the year. "At this time, most point to a pullback within an ongoing uptrend."

That's contrary to what other Wall Street commentators have said, who have warned of more pain to come amid sticky inflation. Morgan Stanley's top stock strategist warned the S&P 500 could crash 26% in the coming months, and stocks could suffer from the worst earnings recession since 2008.