There’s a Bear Coming Towards Us – But is it a Grizzly Bear or a Teddy Bear?June 17th, 2022 by Jim Allen
As we have discussed in previous blog posts, we have been in an historically long bull market. The current market recovery started roughly March of 2009, and other than a very short COVID induced drop in 2020, had continued until this year. Given that the average bull market lasts somewhere around 48-60 months, this one is well above the norm in duration.
With supply chain issues, pent up demand for goods and services, and a war in Ukraine causing skyrocketing inflation, we may have finally seen the end of this long running bull. The markets have entered bear market territory (indicated as a drop of 20% from previous highs) a couple of times already this year.
Does this mean that a bear market is imminent or is already happening? Possibly. But we do feel you can see a bear in the road out in the distance. It isn’t clearly charging towards us yet, but odds are it is coming towards us. The question is whether that bear in the road is a little Teddy Bear or a great big Grizzly Bear.
On average, bear markets last about 18 months and have an average drop of 40%. However, those are averages. Some bear markets have been longer with larger drops (grizzly bears) while some shorter with smaller drops (teddy bears). Here are some examples from bear markets over the past 60 years or so:
1950’s: 6 months and 22.3% drop (Teddy)
1960’s: 19 months and 29.3% drop (Grizzly)
1970’s: 21 months and 42.6% drop (Grizzly)
1980’s: 3 months and 29.8% drop (Teddy)
1990’s: No Bear in sight – bear market started in 2000
2000’s 24 months and 44.7% drop (Grizzly) 2000-2002
16 months and 51% drop (Grizzly) 2008-2009
In the first decade of the 2000’s we had two major and significant grizzly bear markets. We also recently had the COVID induced blip in early 2020 where the market temporarily dropped 34%. Since it has been twelve years since the last real bear market, it is prudent to expect another bear on the horizon. Whether it will be a Teddy or a Grizzly, we do not yet know. The recent increases in interest rates by the Federal Reserve could throw us into a recession as they try to fight inflation or we could see a situation where “stagflation” occurs. A recession could indicate a shorter (though maybe not milder) bear market while stagflation could indicate a longer bear (see our last blog post for a discussion on stagflation). At this point it is too early to tell as the Fed is trying to walk a tight rope by fighting inflation while not throwing the economy into a deep recession.
Regardless of whether the bull continues to run, or we face a teddy or grizzly bear, rest assured that are we are constantly and proactively looking at your portfolio to maximize your financial success. As always, if you would like a complementary portfolio review and xray, please contact us to schedule your appointment.
Jim Allen, CFP, ChFC, EA, CDFA is President and Chief Financial Planner at Anchor Bay Capital. In addition to his 35+ years of financial planning experience and his professional credentials, he holds a master’s degree in Financial Planning and is a former instructor in the CFP program at the University of California Irvine. He is also the co-author of the book “The Tools & Techniques of Charitable Planning.” Jim can be reached at [email protected]