Updated: Jun 16, 2022
Every Bull Market Meets Its Bear
In the natural world, bulls attack upward with their horns, while bears attack downwardly with their claws – that's why when market prices are rising (and expected to rise) it's called a "bull," and when market prices are falling and expected to decline, it's called a "bear." That's more or less where the comparison stops, because while in nature, bulls, and bears seldom come face to face, in the market, eventually, every bull meets its bear.
The S&P 500 entered a bear market on June 13, 2022, after dropping more than 20 percent from its record closing high in January amid rising inflation, continued interest-rate hikes, and recession fears. The last time global markets swung into the bearish territory was March 11, 2020, when fears over the newly declared COVID-19 pandemic halted an 11-year bull – the longest in history. But what does this mean?
Just what is a bear market?
A bear market is defined by stock prices in an index falling by 20 percent or more as compared to recent highs. Some examples from early March 2020: The S&P/TSX Composite Index (which represents approximately 70 percent of the Toronto Stock Exchange's market capitalization), the S&P 500 (a key gauge of large-cap U.S. equity performance), and the Dow Jones Industrial Average (comprising 30 industry-leading blue-chip stocks) all fell more than 20 percent from recent peaks. Notably, the bear market territory is marked by the magnitude of a decline, not how long prices have been falling. Diminished investor confidence can lead to lower prices and market values for investments.
What does it mean to be “bearish"?
Lacking confidence about the foreseeable future, bearish investors' pessimistic outlook, and short-term perspective may drive them to sell off holdings as they believe the value will continue to diminish. Some bearish investors may also take a different approach by adopting strategies like short selling or buying puts*.
How long have bear markets lasted in the past?
Since 1926, the markets saw at least eight bear periods, according to MarketWatch. Bear markets have varied significantly in length, though experts say they tend to be shorter in length than bull markets. The longest among them bear market started in 1946 after the Second World War, and lasted more than three years. The shortest, in 1987, spanned three months.
Can there be up periods in a bear market?
Though the overall trend is down during a bear market, periods of upward movement are possible. Called a Bear Market Rally, such an event can last days or even weeks.
What should I do now?
As we have stated for years now that we stay diversified and positioned to beat out inflation. We do not want to try to time the market, high or low. Bears pass and opportunities are there for those that are patient and do not panic. History is littered with stories of people that lost money by being invested in the market. The reason? They sold when the market was down. If they had waited through the down times, or luckily bought more during the downtimes, they would have done well.
The age-old adage of "Buy Low and Sell High" is in play. If you are unable to buy low at this time, we ride it out.
Feel free to call me for a review of your portfolio and the advice of an investment advisor with more than thirty years of experience including 1987.
* Thank you to RBC investing academy for market information. * See the Andex Chart on the History of the markets chart