[3/18/20] stay calm because bear markets always come back (it just may take 25 years)
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[3/13/20] Stocks have plummeted more than 20% from their February highs—officially entering bear-market territory just days after the 11th anniversary of the bull run. The volatility triggered circuit breakers put in place to pause trading during steep sell-offs, first on March 9 and again on March 12, after the S&P 500® fell 7% from the previous day’s close, halting markets for 15 minutes. (The second circuit breaker pauses trading for another 15 minutes if the S&P falls 13% below the previous day’s close, and the third stops trading for the day on a 20% decline.) And on March 12, the Dow Jones Industrial Average suffered its worst day since 1987 despite stimulus moves from the Fed.
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The move for the Dow also represents the blue-chip index’s fastest move from a record high to a bear market since 1931 — 19 days. In November 1931, as the Great Depression was enveloping the U.S., the Dow took a brisk 15 days from a record to a drop of at least 20%.
There is some hope, however, that a stint in bear-market territory will be short-lived if the viral outbreak is effectively mitigated by governments and central banks across the globe. Historically, the period in the jaws of a bear can be lengthy.
On average, a bear market for the Dow lasts 206 trading days, while the average bear period for the S&P 500 is about 146 days, according to data from Dow Jones Market Data. The Dow is currently off 29% from its Feb. 12 record, while the S&P 500 and Nasdaq are 27% from their Feb. 19 peaks, as of late Thursday.
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Already, the stock plunge has wiped out a year of market gains that had lifted the fortunes of many Americans and bolstered retirement portfolios. Through Wednesday's close, the U.S. stock market had shed $6.7 trillion in value since its February high, according to S&P Dow Jones Indices senior index analyst Howard Silverblatt.
A bear market differs from a "correction" in its severity, with the latter referring to a decline of 10% from stocks' most recent high. Such declines may also send different signals about the state of the economy.
Corrections are common during bull markets — they are viewed as painful, but normal, because they can puncture speculative bubbles like the run-up in dotcom stocks two decades ago. They also give investors a chance to buy stocks at lower prices.
Bear markets are much rarer, occurring on average about once a decade. They also often — though not always — foreshadow a recession.
The good news? Bear markets usually don't last as long bull markets, according to financial firm Invesco. The typical bear market lasts just shy of a year and wipes out about 34% of the stock market's value. But timing the end of a bear market and he beginning of a new bull market can be tricky, which is why investment pros generally advise long-term investors to hold onto their stocks.
And despite the coronavirus, Wall Street expects markets and the broader economy will rebound later this year.
"By year-end, economic and earnings growth will be accelerating, the Fed funds rate will be at the zero lower bound and the impact of any fiscal stimulus will be flowing through to consumers," Goldman Sachs analysts wrote in a note to clients on Wednesday.
Goldman's prediction for the S&P 500 at year-end? At around 3,200 points — or about 17% higher than Wednesday's closing price.
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In the current context, many of us are tempted to seek “bargains” to buy. However, I regret to inform that the worst is yet to come.
The current bear market is about to enter into a second, and more difficult, stage. The first leg of this decline was primarily driven by professional selling – professional traders and fund managers selling and unwinding positions. The selling by professional investors is far from done. However, the second leg of the decline will be driven primarily by mass selling on the part of individual investors who will now start to massively and simultaneously liquidate their stock portfolios and fund holdings – from their private accounts and retirement accounts. Both mutual funds and ETFs will be forced to liquidate their portfolios in order to meet redemption and sales.
This is a real crisis – it's not going to be a short-term problem. The coming 12-18 months are going to be very long and difficult times.
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[3/12/20] The escalating coronavirus emergency sent the stock market Thursday into its worst slide since the Black Monday crash of 1987, extending a sell-off that has now wiped out most of Wall Street's big gains since President Donald Trump took office.
The S&P 500 plummeted 9.5 percent, for a total drop of 26.7 percent from its all-time high, set just last month. That puts it way over the 20% threshold for a bear market, officially ending Wall Street's unprecedented bull-market run of nearly 11 years. The Dow Jones Industrial Average sank 2,352 ponts, or 10 percent, its heaviest loss since its nearly 23 percent drop on Oct. 19, 1987.
Stocks fell so fast on Wall Street at the opening bell that they triggered an automatic, 15-minute trading halt for the second time this week. The so-called circuit breakers were first adopted after the 1987 crash, and until this week hadn't been tripped since 1997.
The Dow briefly turned upward and halved its losses at one point in the afternoon after the Federal Reserve announced it would step in to ease "highly unusual disruptions" in the Treasury market. But the burst of momentum quickly faded.
Trump often points proudly to the big run-up on Wall Street under his administration, warning a crowd at a rally last August that "whether you love me or hate, you gotta vote for me," or else your 401(k) will go "down the tubes."
Just last month, the Dow was boasting a nearly 50 percent increase since Trump took the oath of office on Jan. 20, 2017. By Thursday's close, the Dow was clinging to a 6.9 percent gain, though it was still up nearly 16 percent since just before Trump's election in November 2016.
The Dow officially went into a bear market on Wednesday, when it finished the day down more than 20 percent from its all-time high. For the S&P 500, this is the fastest drop since World War II from a record high to a bear market.
The combined health crisis and retreat on Wall Street heightened fears of a recession.
"This is bad. The worst and fastest stock market correction in our career," Chris Rupkey, chief financial economist at MUFG Union, said in a research note overnight. "The economy is doomed to recession if the country stops working and takes the next 30 days off. The stock market knows it.
The fallout mounted Thursday, as the NCAA canceled its men's and women's basketball tournaments, major league baseball postponed opening day, and Disneyland announced it is shutting down. Even Mount Everest closed. Closer to Wall Street, New York's Metropolitan Museum of Art, Carnegie Hall and the Metropolitan Opera shut their doors, and Broadway theaters planned to go dark.
In a somber prime-time address Wednesday night from the White House, Trump announced the new travel ban as well as measures to extend loans, payroll tax cuts and other financial relief to individuals and businesses hurt by the crisis.
But the travel restrictions represented another heavy blow to the already battered airline and travel industries, and the other measures did not impress Wall Street.
In a surprise move, the Fed said it would pump in at least $1.5 trillion to help calm the market and facilitate trading.
After earlier thinking that the virus could remain mostly in China and that any dip in the economy would be followed by a quick rebound, investors are seeing the damage and disruptions mount, with Italy locking itself down, the NBA suspending games and authorities in the U.S. and beyond banning large gatherings and closing schools.
"Anyone who tells you they know how long this is going to last is wrong," said Adam Taback, chief investment officer for Wells Fargo Private Bank. "The uncertainty here is trying to figure out how you get this virus under control, and is that a matter of days, weeks or months."
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[3/12/20] Wall Street’s staggering skid that began less than three weeks ago has pulled the Dow Jones Industrial Average into what’s known as a bear market.
After a string of sharp losses, the Dow has now fallen more than 20% from its last peak on Feb. 12.
The S&P 500, the index most investors pay attention to, moved within striking distance of its own bear market Wednesday, as did the Nasdaq. Both indexes are in a correction, down at least 10% from their most recent all-time highs.
Here are some common questions asked about bear markets and corrections and what they mean for average investors:
HOW IS A BEAR MARKET DIFFERENT FROM A MARKET CORRECTION?
A correction is Wall Street's term for an index like the S&P 500, the Dow Jones Industrial Average, or even an individual stock, that's fallen 10% or more from a recent high. A bear market occurs when the index or stock falls 20% or more from the peak for a sustained period of time.
Corrections are common during bull markets, and are considered normal and even healthy. They allow markets to remove speculative froth after a big run-up and give investors a chance to buy stocks at lower prices.
The major U.S. stock indexes entered a correction this month amid mounting fears about the impact that the coronavirus outbreak could have on the global economy and company earnings growth. A oil market price war this week that led analysts to lower their profit forecasts for energy companies fueled more selling on Wall Street.
All told, the Dow fell 1,464.94 points Wednesday to 23,553.22. That's 20.3% below its record close of 29,551.42 on Feb. 12. The S&P 500 index slid 140.85 points to 2,741.38. It's now down 19% from its high of 3,386.15 on Feb. 19. The Nasdaq dropped 392.20 points to 7,952.05, or 19% below its peak of 9,817.18 on Feb. 19.
WHAT'S BOTHERING INVESTORS?
The outbreak of the coronavirus that originated in China has quickly grown into a pandemic that is threatening major sectors of the global economy, stoking fear that the U.S. and other economies could be tipped into a recession.
Many companies, including airlines, cruise operators and big consumer technology manufacturers, have warned their earnings will take a hit this year due to the economic fallout from the outbreak.
Investors remain uncertain over whether action taken by the Federal Reserve and the Trump administration to shield the economy will be effective or arrive quickly enough to prevent widespread economic pain.
More recently, a sharp drop in crude oil prices has further dimmed the overall outlook for corporate profits this year and next. Company profits tend to be the biggest driver of stock market gains.
HOW OFTEN DO MARKET CORRECTIONS BECOME BEAR MARKETS?
In the S&P 500, there have been 23 corrections since 1945 and 12 bear markets, not including the current near-bear market, said Sam Stovall, chief investment strategist for CFRA. That works out to corrections becoming bear markets a little less than 35% of the time.
Should the S&P 500 enter a bear market before April 11, it would mark the fastest drop of 20% by the index on record, Stovall said.
WHEN WAS THE LAST TIME WE HAD A BEAR MARKET?
The last bear market for the S&P 500 ran from Oct. 9, 2007 through March 9, 2009. The index fell 56.8%. in that 17-month period as the U.S. housing downturn and mortgage crisis erupted, triggering a credit crunch.
HOW LONG DO BEAR MARKETS LAST AND HOW DEEP DO THEY GO?
On average, bear markets have lasted 14 months in the period since World War II, while market corrections have lasted an average of five months. The S&P 500 index has fallen an average of 33% during bear markets in that time. The biggest decline since 1945 occurred in the 2007-2009 bear market.
History shows that the faster an index enters into a bear market, the shorter they tend to be. Historically, stocks take 270 days to fall into a bear market. When the S&P 500 has fallen 20% at a faster clip, the index has averaged a loss of 26%, Stovall said.
WHAT ARE THE SIGNS THAT A CORRECTION OR A BEAR MARKET HAS ENDED?
Generally, investors look for a 20% gain from a low point as well as sustained gains over at least a six-month period.
On average, bull markets last 4.5 years. In terms of the S&P 500, the current bull market has been going on for almost 11 years.
The shortest bear market for the S&P 500 was in 1990. It lasted almost three months, sliding 20% in that period. The longest was a 61-month bear market that ended in March 1942 and cut the index by 60%.
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[3/14/20] A look at bull and bear market through history
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[3/13/20 Profit from the Pros by Kevin Matras] So what now?
Let's look at a few stats. The top 10 worst bear markets (using the Dow) following the Great Depression shows that it declines on average by -39.27%. And it lasts on average of 16.9 months.
The biggest bear market in that study was the last one (10/2007-3/2009) during the housing/financial crisis. It was dubbed the Great Recession and the market plunged by -54.43%. But it's worth noting that our economy and financial system back then were on pretty shaky ground. A starkly different situation compared to now.
But while we're drawing contrasts, we don't yet know how this health scare will compare either.
Nonetheless, the market as of the close of business yesterday was down by -28.26%.
So we're not that far from the average. Although, there's a way to go to the worst case study.
But the rallies that followed have been even bigger. Within a year after a bear market, stocks surge on average of 44.74%. And go on to gain on average 66.34% by year 3.
BTW, following the Great Recession, the market gained 63.40% in year 1; 100.58% by year 3; 153.58% by year 5; and more than 357% during the entire 11+ year bull market.)
Anyway, there could very well be more downside.
But now is the time to start building your list of your dream stocks.
You don't have to go all in at once. But you can start taking nibbles.
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