Anatomy of the Bear

This week’s financial headlines are hard to ignore, both in size and tone. They want you to know that the S&P 500 has entered “bear territory.” What does this mean for investors?

Technically it means the S&P 500 closed below 3,837.24 on Monday. That’s 20% below its most recent high– the definition of a bear market. Metaphorically a bear market comes from the notion that a bear starts on its hind legs and comes down when it attacks. By contrast, a bull starts in a low stance and brings his head up to attack. So as of this week, the bull surrendered to the bear for the first time since this latest bull market began in 2020.

Going back to 1932, the average bull market has lasted 3.8 years. Good to know, right? Bear markets, by contrast, usually last less than a year. In fact, they are typically over in fewer than ten months. Of course, each market cycle is unique. In 2020 investors recouped all of their losses from March when the market hit new highs in August that same year. After the Great Recession, portfolios took about four years to recover.

But the economy and the stock market will recover. And typically, they recover rather suddenly. I’ve often heard investors say that they will get back in “when things settle down.” That’s the same as saying, “I’d like to sell everything today at a discount. Perhaps in a year, when things are at a premium again, I will hop back in the market.” That is not the path to wealth-building.

In March, I wrote a blog post about the overall lack of volatility in the markets prior to this year. Do you remember when financial markets were making a boring, steady climb to new record highs? Seems like a long time ago, doesn’t it. In that post, I mentioned that since 1999, the S&P 500 has made intraday moves of 2% or more once every three weeks on average. Throughout 2022 we have seen 2%+ moves about twice a week. If you feel a little bit whipsawed by what’s going on, that’s why.

These are difficult times. I’ve been having conversations with clients to ensure the plans we made during good times still suit their financial and emotional realities during this turbulence. Remember, half of the S&P’s biggest daily moves over the last two decades have come during bear markets. You need to stay invested to meet your long-term needs. 

I wish I could tell you when things will get better. Instead, all I can tell you is that it will get better. This is the type of volatility, pain, and uncertainty we face in exchange for the long-term rewards of patient, plan-based investing.

Let me conclude with this. Be wary of the news. It will not help you sleep. And it has no more insight than anyone else. In fact, I love this headline from the Wall Street Journal, which ran on March 9, 2009, THE EXACT DAY the market began the longest bull market in history, “Dow 5,000? There’s a Case for It.” The Dow dipped to 6516.86 that day and never looked back.