The Four Stages of a Bear Market

With social distancing now our current norm, we wanted to assure you that your Moneta team, backed by our internal investment department and our external research partner, are all watching over your portfolio. We are talking with you and rebalancing, where necessary, to optimize your position in these ever-evolving market conditions.

History shows us that down markets have always rebounded. This bear market will have a beginning, a middle and an end. The market indicates that we are at the start of a recession. We cannot predict how long it will last and how deep it will go, but historical data tells us the following:

  • There are typically four stages in a bear market.

Four stages of a bear market

  • Earlier this week, we were still in the panic stage – based upon recent market action.
  • The Fed has responded aggressively and quickly by using multiple policy tools that were formulated during the 2007-2009 Global Financial Crisis to keep the markets liquid and functioning.
  • As the stimulus package unfolds, we believe we will continue to see market indicators move us toward the stabilization phase.
  • The official “beginning” of this recession is still unknown, but we believe the economy likely entered a recession March 1.
  • The average length of each recession is 10.8 months. Of the 12 recessions since WWII, the duration of each recession ranged from 6-18 months. Our most recent – from December of 2007 to June of 2009 – was the longest.

Historical Recession Duration

  • When have we hit bottom? A bottom, unfortunately, can’t be called until we are already out of it. But we can look at the timing of the bottom of the market in past recessions. The orange dot represents the timing that the S&P 500 values were at their lowest, according to their month-end data. Typically, the low point occurs 4-9 months prior to the end of the recession; however, in 2001 the market bottomed 10 months after the recession!

Timing the bottom of the stock market

We are now most closely watching the stimulus package impacts and the rate at which the coronavirus is contained.

It is important for you to remember that emotional decisions have often proved to be the wrong decision in hindsight. Market declines actually decrease risk and increase the prospect for future returns. So, we suggest the following:

  • Don’t panic.
  • Revisit spending and saving rates.
  • Maintain a long-term perspective, similar to investment goals and timeframe.
  • Selectively deploy excess cash.
  • Harvest tax losses when practical.

Unusual circumstances typically present opportunity. May you be able to appreciate this time with family, slowing down and reconnecting.

As always, contact us anytime with your questions or concerns. We are your advantage.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. This is not an offer to sell or buy securities. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

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