Markets: Dancing with the bear
The bear market is back, said Mark DeCambre in MarketWatch.com, and its sudden re-emergence from hibernation has investors seriously spooked. It took just 19 trading days for the Dow Jones to drop 20 percent off its record high on Feb. 12, representing “the bluechip index’s fastest move from a record high to a bear market since 1931.” The coronavirus-induced sell-off occurred the week the bull market should have been celebrating an 11-year anniversary. Bear markets have not lasted nearly as long: On average, a bear market for the Dow lasts 206 trading days, or roughly 41 weeks. For the S&P 500, it averages 146 days of hurt. However, not all bear markets are created equal, said Steve Goldstein, also in MarketWatch.com. Goldman Sachs distinguishes between “structural, cyclical, and event driven” bear markets. Those that are structural, such as the decline of 2008, are “created by imbalances and financial bubbles” and are the most painful—dropping, on average, 57 percent. Event-driven bear markets, such as the Black Monday crash of 1987, end up only half as bad, with an average total fall of 28 percent.
It’s hard to compare this bear market to others, though, said
Nir Kaissar in Bloomberg.com. That’s because the magnitude of this one “won’t be determined by how investors feel but by how companies perform.” The bull run was propelled by earnings, and investors have grown accustomed to seeing dazzling quarterly reports. They will not see those for a while if the epidemic continues “keeping workers, customers, and revelers at home for an extended period.” In the last few days you’ve probably heard “the phrases ‘Stocks are cheap’ and ‘This is a buying opportunity,’” said Bob Pisani in CNBC .com. “Maybe, but this only has meaning if we have some sense of what earnings will be over the next couple quarters. We don’t.” The typical target metrics simply don’t apply in this unprecedented pandemic.
The best way to handle this is to think about how to minimize your regrets, said Jason Zweig in The Wall Street Journal. In other words, gauge “how bad you will feel if your decisions turn out to be wrong.” The two biggest regrets an investor faces today are “the risk of losing massive amounts of money if the epidemic worsens versus the risk of missing out on what could be a robust rebound.” So if you feel you have to sell stocks to calm your nerves, do it gradually. Conversely, if you’re feeling daring enough to buy, nibble in equal amounts over the course of weeks or months. “Taking small actions over time, rather than a big drastic decision all at once, should help reduce your future regrets regardless of what the markets do from here.”