How long does it take to recover from a bear market?
It was announced on June 14th, 2022, that we are officially in a Bear market for the S&P 500. The NASDAQ index was declared to be in a bear market almost 3 months ago.
Personally, this is my fifth or sixth bear market as an investment advisor and I can’t remember one of these bear markets as being fun for anybody.
There is hope, but first, let’s talk about what got us here.
- The government passing out trillions of pre-monies over the last two or three years.
- The Fed cutting rates to zero and pumping trillions of dollars into the economy.
- Threatening oil companies make it harder to borrow money to bring on new production.
- The war in Ukraine.
These four factors, plus a few others have led us to the highest inflation rate we have seen since the 70s. One of the new pastimes in America is when you were on your way to work to check out the oil prices and on the way out you check to see if they had gone up very much. So, America is witnessing the highest inflation that we’ve had in this country since the late 70s.
Jerome Powell (inflation killer)
Well here comes the inflation killer Jerome Powell ‘The Fed Chairman’. He is aggressively raising rates to shut off demand. This is the only tool that the Fed has left to fight inflation. You must shut off demand for high ticket items which people were borrowing money on at almost not zero rates, but close to that.
Home Prices for example. Just three or four months ago you were able to get a 30-year mortgage at a rate of 2.90%, now that same 30- year mortgage rate is close to 6%. So, raising rates will shut off demand for big-ticket items – whether it’s a home, a boat, a second home, a car, or anything where people normally borrow money and pay for it over time.
Unfortunately, when you shut off demand for these kinds of items, unemployment goes up. And then what normally follows that rise is a recession. The signal of a Recession is having two-quarters of GDP being negative or zero, and we’ve already done that in the first quarter, who knows where we’re at in the 2nd and 3rd quarters.
As soon as the Fed see these rates taking effect going forward and shutting off demand, they will not be as aggressive in raising rates or maybe even slow the whole process.
What to expect from the stock market?
The average bear market lasts anywhere from 7 – 9 months. The method to count the time in a bear market is once a bear market is declared(June 14th S&P500) you go back and start counting the months the market started going down. In this case, it was January of 2022, so we will already be at month 6 or 7 therefore we are much closer to the end than the beginning.
In 10 of the last 12 bear markets, if you would have bought the S&P500 the day that a bear market was declared, you would have averaged 22.7% in the next 12 months(1).
The stock market is always 6 – 9 months ahead of the economy. And this year when the market started to go down, in January, it was spot on. Again, this is a Fed-induced recession whereas demand and prices dropped, the chairman will slow the rate hike.
One last caveat.
In the Bank of America article published June 17, 2022, by Barbara Kollmeyer, she explained that in the next phase, once the bear market stops, then a bull market starts. The average bull market lasts about 64 months, and she is projecting “the S&P will be at 6,000 by Feb. 28th”(2), almost a double from here.
Remember what sectors lead the last bull market almost never lead the new one.
John Romano, CFP ®
Office Phone: 352-753-8590
John Romano, CERTIFIED FINANCIAL PLANNER™, has over 30 years of experience in the financial field. John is a Registered Representative with Securities America, Inc. (a member of the FINRA and SIPC), and an Investment Advisor Representative with Securities America Advisors. He has prepared hundreds of reports for retirees to assist in their retirement income planning needs. He is dedicated to providing portfolio analysis, dividend and income information, and investment management services to retirees (and those preparing to retire) in The Villages, Florida, and throughout the United States.
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- https://www.marketwatch.com/story/those-who-buy-stocks-the-day-after-the-s-p-500-enters-a-bear-market-have-made-an-average-of-22-7-in- 12-months-11655224023
- https://www.marketwatch.com/story/based-on-history-the-next-bull-market-is-just-months-away-and-could-take-the-s-p-500-to-6000-says-bofa- 11655475414?mod=search_headline