Are We In A Bear Market?
The markets have been looking more than a little shaky lately. So are we in a bear market already? If so, how can we stop it? Read on to find out what we think. After that, we’ll take our usual plunge into outlining the top fundamental events to watch out for this week.
What is a Bear Market?
Imagine how a bull or a bear would attack their prey. A bull will typically raise its horns upward, while a bear will strike with its claws downward. So, a bear market is one that is trending down for a consistent period of time.
Check out our fun animation featuring Don Bull and Rob Bear!
Are we experiencing a bear market now?
The markets recently came close to official bear market territory when the S&P 500 dropped around 20% from its high. As a general rule, a bear market is when the overall stock market drops in value by 20% or more from recent highs.
On 3 January, the index sat at 4,796.56 USD, but by the 20 May, its price had dropped to 3,901.36 USD — a fall of 18.66%. Perilously close to our (not so) magic 20%
This drop was a result of many factors, not least the barrage of rising inflation costs, higher interest rates and lacklustre earnings reports from major companies. It was also impacted by general investor sentiment due to ongoing geopolitical instability and rising commodity prices.
However, the market corrected over the last week or so, as you can see below.
So, we may be heading for bear market territory, but that doesn’t have to be as devastating as it sounds? It depends on what kind of bear we let out of the cage.
Teddy bear or raging monster?
Bear markets can be pretty nervy affairs. It’s not nice sitting by helplessly watching your portfolio slowly dwindle in value.
Because humans are emotionally driven, in such stressed scenarios we often make knee-jerk decisions that can make matters much worse. This emotion can send the situation spiralling and turn an otherwise tame bear market into a full-blown catastrophe.
To ride the storm, investors need to stay calm and know that history is on their side.
There have been 26 bear markets since 1928, each of which has been followed by a bull market, providing solid gains that help make up for losses. During bear markets, stocks tend to drop by roughly 36%. During bull markets, stocks have tended to rise by about 114%.
Also, there are far more good days than bad. According to Bank of America’s Michael Hartnett, looking back over the last 140 years, on average, bear markets last just 289 days, while bull markets can run upwards of 991 days.
So, if you take anything from this article it should be: STAY CALM!
Do you agree?
Are we in a bear market already? How have you adjusted your trading strategy? Let us know by tweeting us at @_Contentworks.
Top trading events week commencing 30.05.22
We should see quite a busy week in the markets, here are the hottest events for your trading calendar.
No major events are planned.
● CNY — NBS Manufacturing PMI (MAY)
● EUR — Core Inflation Rate YoY Flash (MAY)
● CAD — GDP Growth Rate Annualized (Q1); GDP Growth Rate QoQ (Q1)
● USD — CB Consumer Confidence (MAY)
● AUD — GDP Growth Rate YoY (Q1)
● CAD — BoC Interest Rate Decision
● USD — ISM Manufacturing PMI (MAY)
No major events are planned.
● USD — Non Farm Payrolls (MAY); Unemployment Rate (MAY); ISM Non-Manufacturing PMI (MAY)
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The Contentworks team