The 2020 Bear Market is Over!
The 2020 bear market is officially over. Today:
- we’ll take a look back at what happened.
- We’ll tell you what it means to patient long term investors.
- We’ll talk about the implications going forward.
Watch Now: The 2020 Bear Market is Over!
The 2020 Bear Market is Over!
Subscribe Where You Find Your Podcasts
Transcript: The 2020 Bear Market is Over!
The 2020 bear market officially ended last week. It started February 19, when the market set an all-time high at 3386. Over the next 33 days, stock prices fell 34%. On March 23, the market closed at 2,273. Since then, the market increased 51.5%. On Tuesday, August 18, It closed at a new all-time high of 3,389.
How Does This Compare to Previous Bear Markets?
When we look back at the major bear markets, we think of the “dot com” bust and the Great Recession. During the “dot com” bust, stock prices fell 49%. It lasted almost three years, and it took about 56 months for prices to completely recover. The Great Recession didn’t last quite as long. Prices dropped 57% and it took about 49 months to recover.
This one happened a whole lot faster. If we look at drops of similar size, there are two to consider, 1968 and 1987. In 1968, prices dropped 36%. It took 543 days to go from top to bottom. And, it took 21.7 months to recover.
What does this mean to patient, long-term investors?
Since 1946, we’ve seen 14 bear— or near-bear—markets. All are slightly different. The details about why they started, how far they fell, and how long they lasted, differ. But when you step back and look at each of them, they’re all basically the same. Every bear market is a short-term interruption to the long-term advance of stock prices.
What are the implications of this going forward?
The first thing we need to remember is there’s another bear market coming. It may be sooner than we like. We’re still dealing with the impact of the coronavirus pandemic. The virus is still present. We have high unemployment. Businesses continue to struggle to get back to normal. That could all be a catalyst to the next bear, and it may happen faster than we want.
It may be several months before the next bear starts. We have no idea when it will happen. We also don’t know how far it will drop or how long it will last.
Now’s a great time to check the risk reward part of your portfolio. We all depend on stocks for the growth they provide over the longer term. Growth we need to achieve our goals.
If this last one made you extremely uncomfortable, it’s time to have a conversation. You should talk about the amount of short term risk you are taking for the pursuit of that long term growth.
It’s a better time to make adjustments to the stock allocation of your account. Selling stocks when prices are near their all-time highs is better than selling in the midst of a bear market. Remember, we want to buy low and sell high—not the other way around.
Now is a Great Time To Evaluate Risk and Reward
Pursuing modest growth means you face difficult times. We have a way to help you measure how you feel about those downturns. It’s called a Risk Number. Click the button to find out more.
Thinking about bear markets is a good reminder of one of my favorite sayings about stocks.
We never know what the direction of the next 20% movement in prices will be. But we are pretty sure what direction the next 100% move will be.
About the Author
Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. He specializes in helping hard working, middle class families plan for retirement.