Well it finally happened – after eleven years, the longest bull market in history finally took a breather and ceded its leadership to the bears. Is this the beginning of the end of the world as we know it? Hardly.
While the technical definition of a bear market is a decline of 20% from a previous high, there have been several times over the past 10 years when we have missed the mark by just a whisker. A bear market in and of itself does not have any particular significance. Typically the bear may presage a recession, which is a contraction in GDP over at least 2 quarters. Economist Paul Samuelson famously quipped “the stock market has predicted nine of the past five recessions.” So it certainly does not have a high degree of predictability.
We are not going to opine on the probability of a recession, however, the panic the market is experiencing is likely rooted in the expectation that the economy will take it on the chin as people reduce their social interaction. The fact that Covid-19 has been declared a pandemic no doubt has spooked not just investors, but consumers, who generate 70% of our GDP.
As weird as this may sound, what we are witnessing now is normal market behavior. From time to time Mr. Market has a breakdown and will pitch you some really lousy prices, in this case, just 3 weeks after hitting all-time highs! We decide when prices are favorable. If the market is marking prices down, we don’t have to pay today’s price. We have the time to wait for Mr. Market to get his bearings, and pitch us more reasonable pricing.
Short-term volatility, unfortunately, is the price stock investors must pay from time to time for those historically high stock market returns relative to all other asset classes. If this were easy, everyone would be rich. Times like this are certainly not easy to take. We are here to support you. We have been through times like this many times in the past, and can offer you the reassurance that this too shall pass. As always, contact us with any questions or concerns.
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