Bear Markets Bounce

By Ryan Gilmer, CFA, CMT Chief Investment Officer

March 13, 2020

It’s been a historic week to say the least! Schools, professional sports, concerts, and many other social events have been canceled or postponed. Even going to the store has become a stressful event. If you are feeling perplexed, confused, overwhelmed, or stressed, you’re not alone.

Amidst the current panic surrounding the coronavirus (COVID-19), stock markets around the world have continued their decline. From the top of the market on February 19th, through the low yesterday, the S&P 500 fell almost 27%. Globally, most stock market indexes are down similar amounts. We have officially entered a bear market, defined by many experts as a market loss of 20% or greater. But, many client accounts are down much less than the market because they also hold some safer investments such as bonds.

This is not the first, nor the last bear market investors will endure. As you can see from the following table, bear markets vary in length and size of decline. Some, such as 1961, 1966, or 1987, take only months before they end. Others may last a few years.

historical table of past bear markets

Source: JP Morgan Guide to the Markets, Optuma

While each circumstance is unique, because this decline has happened so quickly, the current situation most closely resembles the 1987 bear market. Of course, we aren’t certain how the present market will resolve, but we can generalize from the past and apply those lessons now.

For example, when the bear market does end, we typically see significant rallies in the 12 months following the bottom. The table above helps explain why we typically advise you to maintain a long-term perspective and avoid selling when markets go down. When the bear market ends, markets tend to rebound quickly. Investors who hold, or buy more, give themselves a very good chance at attractive future returns.

We aim to communicate our thoughts effectively with these periodic updates. If you have specific questions, please call or email and we’ll be sure to respond to you as soon as possible. In the meantime, we hope this helps reassure you and give perspective with regard to the current markets.

Keywords: covid19
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