Turbulent Times: Bear Markets Come and Go

The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.1

Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are sustained increases of 20% or more from the bear market low. But there is no official declaration, so often there are different interpretations and a fair amount of debate regarding when these cycles begin and end.

Between February 19 and March 23, 2020, the S&P 500 fell 34% and then took just 15 days to bounce back above the 20% threshold that would technically mark the beginning of a new bull market.2

Still, most investors wait to see if volatility subsides and higher prices persist before they cheer the exit of a bear market. And in the midst of the pandemic, without a clear economic picture, it could be more difficult than usual to tell whether any market advance is a short-term rally or the start of a longer upward trend.

Historical Perspective

The CBOE Volatility Index (VIX), a closely watched measure of stock market volatility and investor anxiety, hit all-time highs in March 2020.3

If you are losing sleep over volatility driven by disheartening news, it may help to remember that the economy and the stock market are cyclical. There have been 10 bear markets since 1950 (not counting the one that began in 2020). Each of these declines was triggered by a different set of circumstances, but the market recovered eventually every time (see table). 4

On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (-34.2%).

The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. There are buying opportunities in the midst of the worst downturns. And in some cases, people have profited over time by investing carefully just when things seemed bleakest.

 

Making Changes

If you’re reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off.

Changes in your portfolio don’t necessarily need to happen all at once. Having appropriate asset allocation and diversification is still the fundamental basis of thoughtful investment planning, so try not to let fear derail your long-term goals.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary.n their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.

1-2,4) Yahoo! Finance, 2020 (data for the period 6/13/1949 to 4/7/2020)
3) MarketWatch, March 31, 2020

By Kingdom Financial Ministries

A financial professional can apply his or her skills to your specific needs. Just as important, you have someone who can answer questions about things that you may find confusing or anxiety-provoking. When the financial markets go through one of their periodic downturns, having someone you can turn to may help you make sense of it all. Donald A. Galade is a self-starting motivated individual who believes the Bible is the inspired Word of God. Don is President of Galade Financial Services, Inc. a full-service insurance brokerage firm, and CEO of GFS Financial Advisors, LLC. which is a registered investment advisory (RIA) firm located in Drums, PA. Don is a home-schooling dad who blends his passion for others and his professional skills to help clients define and meet their financial goals. He has worked in the Financial Services industry since 1987 and has been a Financial Advisor since 2004 Don routinely attends intense training and continuing education sessions that deal exclusively with the financial needs of those who are near or currently in retirement and is well versed in the latest strategies designed to meet those needs. He is a former Vice President of the Hazleton, PA chapter of the Pennsylvanians for Human Life, and is also a former member of the Kiwanis, Unico, and Rotary clubs in North-East PA.