by Kenneth J Entenmann, CFA, NBT Bank The last few days in late March felt like a reprieve of sorts, with the equity markets showing better performance (As of mid-day March 31, the Dow was at about 22,000, up from a week ago when it was under 19,000, but down from mid-February of over 29,000). While rising numbers are a relief, it’s hardly a signal that all is back to normal.
Global markets hate uncertainty, and never has this been more apparent than in the current coronavirus pandemic crisis. With so much still unknown about the duration and depth of the crisis, including which countries will be hardest hit and how quickly they can recover, the markets will likely continue to be unsettled.
Over the last few weeks, we’ve seen both precipitous drops and relieving rallies. The drops have mirrored bad news—which we’re likely to see more of in the coming days and weeks.
As I write this, the top news story of the day is that a record number of Americans filed for unemployment benefits last week. The seasonally adjusted number of 3.28 million claims for the week ending March 21 has shattered all previous records. While the number of new claims is alarming, it is not unexpected. Businesses across the country have closed their doors in response to this unfolding crisis.
When we consider the scale of closures of bars, restaurants, airlines, cruise-lines, hair salons, barbershops, malls, gyms—virtually any public-facing business has shut its doors—the record-high jobless numbers are historic, stunning, and yet expected.
Now, we await other economic numbers that we know will be bad as well. 2nd Quarter GDP, Business Confidence, home and auto sales, construction and manufacturing activity, home sales...the list goes on. These numbers are likely to be historic as well, given the nationwide shutdown of economic activity.
Things will be bumpy for a while. Negative job numbers and a severely contracting economy will impact the markets in one direction, while Congress agreeing to fiscal stimulus and an economic relief package will send the markets in the other direction.
The most important thing we can all do right now is to stay the course. We’re in a bear market ...a very scary bear market. But bear markets are a fact of life and something that requires patience and discipline to endure.
Here’s what we should all “bear” in mind about bear markets (and thanks to our research partners at Hartford Funds for providing these facts):
1. A bear market is a 20% correction from peak to trough. What is amazing and scary about this bear is the speed of the correction. The S&P 500 index peaked at 3386 on Feb. 19th and declined 20% in just 23 trading days! A world speed record!
2. Stocks lose 36% on average in a bear market. Prior to the March 25 market rally, the S&P’s trough decline (so far!) was roughly 34%.
3. Bear markets are normal. There have been 25 bear markets in the S&P 500 in the last 90 years.
4. Bear markets tend to be short-lived. Over the long-term, the average bear market lasts 299 days. That compares to 989 life-span for a bull market.
5. Bear markets have become less frequent since WWII. As the U.S. economy has become more service oriented, the cyclicality of the economy and the markets have diminished. Since WWII, over 73 years, there have been 13 bears.
6. Market timing is a fool’s game! Nearly 48% of the S&P 500 index’s best trading days occurred in the midst of a bear market, often clustered around the worst days. Witness the trading days in late March! Another 28% occurred in the first two months of recovery.
7. Over the last 90 years of market history, bear markets constitute 20 of those years. Conversely, the markets rise about 77% of the time. In a twist on the Hunger Games, the odds are indeed ever in your favor!
8. Over a 50-year investment horizon, there will be, on average, 14 bear markets. They are a fact of life.
Sometimes, just remembering that things will get back to normal is what we need to hear to steady ourselves.
So, if there’s one thing to take away from this column it is that: the road ahead will be bumpy but eventually we’ll get back to the smooth pavement. Knowing this allows us to proceed with caution and with a steady hand on the wheel.
Be patient. Don’t panic-sell. Stay disciplined. Don’t try and time the markets.
Stay the course and remember that time is your friend.