Bears and Bottoms

Bears and Bottoms

May 20, 2022

Last month we talked about the inverted yield curve and whether a recession was predicted by the recent brief inversion of the curve. While earnings in corporate USA are still chugging along with S&P 500 reports for Q1 coming in close to 10% growth as mentioned in today’s LPL Weekly Commentary, many economists and investment gurus have started to warn about the elevated chances of a recession and a bear market.

A bear market is usually defined by a market decline from a recent peak of 20% or more. As of market close today, we are very near that with the S&P 500 being down about 18% from its most recent high. Certainly, some of the more extreme trading days recently have gotten investors’ attention with market indices down 3% to 4% like they were today according to CNBC.

But one of the most important things to remember is the market is always and forever forward looking. That’s because you can’t invest for the past. So as much as analysts and chartists like to look at their tables, graphs and charts, the data they are scrutinizing only can tell them where we have been, not necessarily where we are going.

And if you look at some more specific slices of the market, we are already in bear market territory and have been for some time. The S&P 500 and the Dow both hit their most recent, and all-time, highs on December 31, 2021. That makes it easy to look at any financial market website and find the year-to-date number to find out where the overall market is from its most recent peak with those two indices.

But other indices reached their peaks much earlier.

According to data provided by Thomson Reuters, the Nasdaq composite was at its peak on November 19, 2021. And it is now off over 28%, well into a bear market. For compliance reasons, and because you can’t invest directly in an index, we won’t name names. But if you look at an index specifically following the consumer discretionary sector, the most recent highs were also on November 19, 2021… now trading down 33% from then. Another index comprised solely of internet stocks peaked in July and is down over 52%. And the largest overseas stock indices peaked even earlier, September for foreign developed and February for emerging markets.

The point of all of this is that the market overall has been pricing in the current action for a while. And all the news that is bringing on the current negative sentiment will eventually resolve. Better news will follow, and the market will again be well ahead of those events. This is why the best course of action is to have a solid investment plan, a diversified portfolio and the ability to ignore the headlines. Call us if you have questions about any of this and how it relates to your situation.’



Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Any economic forecasts set forth in this material may not develop as predicted.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.