A “bear market” is when a given market experiences a 20% decline or more. We usually refer to declines of less than 20% as a “correction”. Another characteristic is they tend to be generalized declines that affect most, if not all of the sectors. The catalysts of these declines are always unique in their circumstances which always makes them feel like “This time it’s different”. It is important also to know that bear markets do not necessarily coincide with recessions. A recession is defined as two consecutive quarters of declining GDP growth. These are two distinct topics.
- S&P 500 (21.07%)
- Dow Jones (16.30%)
- Nasdaq (29.07%)
- S&P TSX (8.95%)
- Euro Stoxx 50 (20.01%)
- VEA (19.84%)
- XBB (14.91%)
- Prices have fallen for some products – possibly a precursor to lower inflation.
- Recent hard economic data remains consistent with economic growth.
- Supply chains have made some slight improvement, with further gains possible.
- U.S. inflation was yet again higher than expected in the latest month.
- Developed-world central banks appear set to raise interest rates by even more than previously anticipated (again!).
- After beginning to re-open, China is closing again as additional COVID-19 infections have been detected in Shanghai and Beijing.
- Business expectations about the future have soured significantly in recent months.
- The probability of recession was already elevated and has increased further.
Dates | Decline Percentage | Length in Days |
9/7/1929–11/13/1929 | -44.67% | 67 |
4/10/1930–12/16/1930 | -44.29% | 250 |
2/24/1931–6/2/1931 | -32.86% | 98 |
6/27/1931–10/5/1931 | -43.10% | 100 |
11/9/1931–6/1/1932 | -61.81% | 205 |
9/7/1932–2/27/1933 | -40.60% | 173 |
7/18/1933–10/21/1933 | -29.75% | 95 |
2/6/1934–3/14/1935 | -31.81% | 401 |
3/6/1937–3/31/1938 | -54.50% | 390 |
11/9/1938–4/8/1939 | -26.18% | 150 |
10/25/1939–6/10/1940 | -31.95% | 229 |
11/9/1940–4/28/1942 | -34.47% | 535 |
5/29/1946–5/17/1947 | -28.78% | 353 |
6/15/1948–6/13/1949 | -20.57% | 363 |
8/2/1956–10/22/1957 | -21.63% | 446 |
12/12/1961–6/26/1962 | -27.97% | 196 |
2/9/1966–10/7/1966 | -22.18% | 240 |
11/29/1968–5/26/1970 | -36.06% | 543 |
1/11/1973–10/3/1974 | -48.20% | 630 |
11/28/1980–8/12/1982 | -27.11% | 622 |
8/25/1987–12/4/1987 | -33.51% | 101 |
3/24/2000–9/21/2001 | -36.77% | 546 |
1/4/2002–10/9/2002 | -33.75% | 278 |
10/9/2007–11/20/2008 | -51.93% | 408 |
1/6/2009–3/9/2009 | -27.62% | 62 |
2/19/2020–3/23/2020 | -33.92% | 33 |
It is easy to get discouraged when you see double-digit declines but history tells us that bulls outrun bears every time.
A reminder about “Timing the market” vs “Time IN the market”
The classic misconception we hear is “I will get out of the markets now while things are uncertain and I will get back in when things are looking more optimistic”. That sounds like it makes sense in theory but prices are lower when there is higher uncertainty and prices are higher when things look better. Acting on this thought means you would sell low and buy high - thereby creating the loss you were afraid of in the first place. That is the opposite of what you should do.
Attempting to time the market is a losing proposition. Don’t take my word for it, let’s look at some empirical evidence, courtesy of CI Global Asset Management.
There are two main points about this:
- The best and worst trading days tend to occur in a clustered period.2. If you miss some of the best trading days, your long-term annualized returns are severely reduced.
Let’s look at “A tale of three investors” by RBC Global Asset Management.
How do you survive a bear market?
Remain adequately diversified by geography, by sector and only own fundamentally sound businesses with limited exposure to each. If you are still accumulating assets, keep dollar-cost averaging into the investment portfolio. If you have a lump sum in cash, I also recommend dollar-cost averaging into the investment portfolio rather than deploying all of it at once. If you are retired, we would already have advised you to have 1-2 years worth of living expenses in cash as a “hump” you can live on while the skies clear. Remember that bear markets are unpleasant but they can’t hurt you unless you hurt yourself.
Investing is essentially a microcosm of life in general. Success comes to those who overcome adversity and remain optimistic when most people give up. Factually, investor behavior is the determining factor between success and failure – not bear markets.
Alexander & The Petrov Wealth Management Group
PS. We take on a limited amount of new clients in a given year and we primarily work by referral. Let us know if there is someone you know who needs help during these volatile times.