Bear Market. Now what?
As of March 12, 2020, the S&P 500 Index entered into bear market territory, defined as a 20% decline from the index’s past high. The Dow Jones Industrial Index, another often quoted index, fell into bear market territory the day before. The underpinnings of the current bear market can be found among the uncertainty, fear and implications of the coronavirus, which continues to spread across the global economy and consume the markets since it was first detected in Wuhan City, China back in December of 2019. The coronavirus is now a pandemic, as declared by the World Health Organization, officially making it a global issue.
A look at past market declines shows that bear markets for the S&P 500 Index occur about once every six years. While past results don’t guarantee future returns, markets have always recovered from past market declines. The chart below shows what the recoveries have looked like over the five biggest market declines in history, since 1929. Over the subsequent five years, markets have always recovered, with only two of the twenty five subsequent years being negative.
Bear markets can last for a while. For long-term investors, research has shown it is generally not wise to try and time the markets in times of uncertainty as if often results in missing out on the market’s recovery. Even in bear markets it is wise to
“stay the course” amid the uncertainty and market volatility. The coronavirus will eventually pass, and in our opinion, investors will again re-focus on the real market drivers like corporate earnings and growth. It is important to keep in mind that current market conditions rarely provide a clear direction as to the future performance of the markets.
The U.S. market in particular has been dynamic and resilient in moving on from crisis after crisis throughout history. The recent market volatility should remind investors to focus on what they should be doing on a regular basis: Be mindful of the situation, but diligent about your long-term investment strategy and goals. Investors need to act in their own best interests while the stock market reacts to the current coronavirus and the uncertainty it brings. Sometimes staying the course (doing nothing) is the best course of action.