The S&P500 has declined for seven straight weeks, a streak not broken since the early 2000’s. A bear market is said to begin once an investment or index has a 20% decline in value from the most recent closing high. The S&P500 had a value of 4,796.56 on January 3, 2022 so a value of 3,837.25 equates to the S&P500 bear market threshold value. The S&P500 dropped past the threshold on Friday, May 20 but avoided that fate by recovering some value in the last hour of trading.

There have been 16 bear markets since World War II and they have lasted around 13 months on average. I spoke about the history of bear markets in my article from late November, titled “It’s Not a Matter of If, It’s When…” The last three bear markets (2011, 2018, and 2020) only lasted 5, 3, and 1 month respectively.

The chart below shows the numerous bull and bear markets that the market has experienced from 1926 to 2021. Each separate market also has the number of months it lasted and the achieved return over that time period. The main takeaway is to show how much more blue (bull markets) you can see on the chart than green (bear markets). As well, compare the historical returns achieved during bull and bear markets of the past. We can see that bull markets last much longer than bear markets AND they also achieve much more growth than what is temporarily lost during any bear market.

There are numerous global current events causing 2022’s market volatility. We have central banks from many developed countries trying to combat inflation, which requires accelerated interest rate hikes. The Russian Invasion of Ukraine is still raging on and this has resulted in commodity prices being very close to multi-year highs. China’s strict “zero COVID” policy is forcing strict lockdowns in cities that have the same size as some small European countries and this is continuing to prolong global supply chain issues. These combined factors will continue to be a headwind on global economic growth and stock markets around the world but don’t underestimate the economy and the stock market. This isn’t the first time that we have experienced heightened inflation, war, and pandemics and the market has always had incredible fortitude to look past many examples of major global events and continue to reach all time highs.

The market was able to avoid the bear last Friday but, none the less, if we do not experience it this time then we will for another reason in the future. While it can be scary to invest during periods of time when investment sentiment is as low as it is, it has never been a bad buying opportunity in the past. These periods of market weakness present opportunities as long as you are investing in the right investments and have the patience to allow for a recovery.

Don’t panic.

Invest in diversified solutions for the long term.

Keep enough cash on hand to weather the storm (keeping in mind that the average bear market has lasted around 13 months).

Want to chat about it? Email me at info@financerx.ca.