The following chart shows a timeline from the 1920’s through to today. The vertical pink shadings are recessions. Unshaded periods on the timeline are economic expansions. The blue “mountain” graphics are a Bull market’s performance of the S&P 500 from the end of a Bear market—the “trough”—to the end of the Bull market—the “peak”. The red upside-down mountain graphic are the Bear markets. The length of each Bull and Bear market is identified with two calculations: the upper one is total return for that cycle; the lower is the annually compounded rate of return for the cycle.
A few observations:
- Bear and Bull markets occur regularly. They are the “stuff” of investing.
- Bull markets are longer and greater in magnitude than Bear markets.
- Corrections (declines of at least 10%) regularly occur during Bull Markets.
- There is a high correlation between recessions and Bear markets, the worst Bear markets coinciding with recessions.
- Bear markets can occur during economic expanisons, and they are relatively short in duration.
If we are entering a Bear Market, we think it will be a Bear Market within an economic recovery. If history has taught us anything, when the markets turn, they turn quickly—whether up or down! Accordingly, we’re remaining invested in our stock allocations.
Negative sentiment in the media about current events is exacerbating the anxiety investors feel in these volatile times. The economy is doing well considering; the possibility of a recession in the near term is low. The big surprise of 2019 might be a turnaround in the market and we’ll see a welcome recovery in stock indices.