What You Need To Know About Bear Markets

The bullish pundits of the Twittersphere; the pros who never met a stock market they didn’t like, grow increasingly quiet at these times; or masterfully through the art of words, combined with short memories of investors and blatantly false narratives, still manage to maintain their personas as ‘market mavens’. As wordsmiths, they cleverly ameliorate the damage that market bears create.

It is crucial for investors to do their own homework, seek second opinions, and not allow their financial partners and the media to minimize the potential carnage bears can inflict on portfolios and financial goals.

So, what is a bear market?

A bear occurs when stock prices fall 20% from the previous high. Unfortunately, we haven’t had a bear market in years; even corrections (10% off the prior high), feel much worse. Spirit memories of the financial crisis are beginning to stir; investors I encounter have 2008 and 2009 in their thoughts and on their lips. Personally, I don’t believe this is redux of the Great Recession. However, I’m sort of relieved how investors bring it up only because the recent market routing is shaking up complacency.

A few facts as of this writing:

Small-cap indices are in an official bear market.

More than half of S&P 500 large company stocks are in bear market territory.

Energy, financials and materials sectors are in a bear markets and industrials are at the cusp.

Utilities, healthcare and consumer staples as the ‘defensive’ areas of the stock market are in correction or pullback which makes sense as money tends to flow to these sectors when the crowd belief is an economic slowdown or recession is imminent. Intuitively, it makes sense – Regardless of economic conditions, consumers are still going to eat, turn on their lights and require healthcare. Ostensibly, as market conditions deteriorate, these sectors inevitably falter.

So, what is the money truth about bear markets?

They occur more often than you think or are told by pundit guests on financial entertainment channels.

I know. Shocking.

Doug Short, one of the finest and thorough economic and market analysts next to Lance Roberts, busts the myth which appears prevalent in media: Bear markets occur 20% of the time, bulls 80%. This is false and dangerous to believe.

Per Doug Short at www.dshort.com:

Since that first trough in 1877 to the March 2009 low:

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