The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market

Here is where things stand with the 2020 bear market, as of March 26.

Bear market 2020
click to enlarge

Some facts

First let’s start with some facts.

  • Current all-time high for the S&P 500 – 3,386.15
  • Current bear market low: 2,237.40
  • Price decline: -33.9%

On the chart above, we put two extra lines. They or show where prices would have to reach to match the two worst bear markets since the 1930s. Those were the dot com bust (-49%) and the great recession (-57%).

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What we know

Fastest bear since World War II:  It took just 22 calendar days (16 trading days) to reach the -20% threshold.  It has also been the fastest pace to reach -30% ever.

A Steep Climb Ahead: Based on the current low point (2,237.40), stock prices will have to climb 51.3% to set a new all-time high.  

What we don't know

Was that the bottom? The current bottom was established on March 23rd.  But we won’t know if that was the “official” bottom for quite some time. 

How long it will take to erase the losses: Above, we mentioned prices would have to increase by more than 50% to set a new high.  Everyone would welcome a fast recovery.  But don’t be surprised if it takes longer than you would like. 

Watch: 3 Things To Know About Bear Markets

What can you do?

As difficult as things are right now, we can’t undo the damage.  Focus on what you can do to create the best outcome from here.

Sit Tight: One of the hardest things to do in times like this is to do nothing. But, we need to remember this is just at temporary thing.  

2020 Bear Market
click to enlarge

This chart shows the last 14 bear markets.  It also shows the bull markets that followed.  The bear market periods are both longer and stronger than the bulls.  (That’s why the S&P 500 has improved by over 10% per year since 1946).

Rebalance:  Your allocation to stocks is now lower than it was before this started.  You may want to rebalance your accounts.  This will adjust your allocation back to pre-bear levels. 

Watch: Should I Rebalance My Accounts

Increase your allocation to stocks:  Consider increasing your allocation to stocks.  Even if the market falls further, you’ll be in a better position when the recovery starts.

Talk to a financial planner:  If you are unsure about what to do, talk to a financial planner.  They can help you figure out the best path forward for you.  

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  • Define A Bear Market
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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. This is his 5th bear market event, and it won’t likely be his last.

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Still Not A Bear Market

Still Not A Bear Market, Yet

Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears even more. The Dow fell over 2,000 points for the first time ever. It was a headliner type day.

You can’t brush a day like that aside and say, “It was no big deal.” It is a big deal. The 7.6% decrease was the worst day for stocks since 2008. And it was the 24th worst day ever recorded. And this comes on the heels of two of the wildest weeks I can remember in my 24 years as a financial planner.

It feels really bad. The “fear index” reached its highest level since the Great Recession. Volatility is extreme.

Still not a bear market

Still Not A Bear Market

But here’s the thing that hasn’t gained traction in the financial media. This is still not a bear market, yet. And “yet” is important. Year to date the stock market has dropped 15%. From it’s high in late February, prices have dropped 18.8%. We don’t find the bear until prices drop 20%.

I say “yet,” because we could easily find the bear’s den in the next few days. I believe it is more likely than not. But there is always a chance we don’t cross that line for a while, if at all.

STill Not a bear market

The Second Hardest Thing To Do...

This is the unpleasant part of being an investor. Riding through the waves of big down days and big up days. “It feels like we are riding The Beast at Kings Island,” as one client put it. That’s a pretty good analogy.

Unfortunately, it looks like this wild ride may continue for a while longer. The impact of the virus both to our health and the economy remains unknown. And now an oil price war adds to the hysteria. We have no control over the uncertainty or the attention. But we can control what we do.

Doing nothing is the second hardest thing to do in times like this. But it is often the best course of action. We can look back at the past 20+ years and find many reasons to sell our shares of great businesses. But those reasons can’t overshadow why we hold onto those positions.

Still Not a bear

What's The Hardest Thing To Do?

What’s the hardest thing to do in times like this? Buy more stock. The shares of these great businesses are on sale for a limited time. The prices might get better, but the sale won’t last long.  Remember, you are supposed to buy lower.  We may not see an opportunity like this again in our lifetimes.

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At times, being a patient long-term investor is hard.  We are glad to discuss your situation in greater detail.  If you would like to talk to us, click the button. 

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Should You Buy Stocks At the Top of the Market?

Should You Buy Stocks at the Top of the Market?

Should you buy stocks at the top of the market?  This is a question submitted by a listener.  Click below to hear our answer.

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Answering a Listener Question

John asks, “With the stock market so close to all-time highs, should I buy stocks, or should I wait?” 

The stock market is very close to all-time highs. We also keep hearing how this is—arguably—the longest-running bull market in history. And at some point, there will be some sort of major drop.

So, should you buy stocks at the top of the market?

It Can Be A Long Way Down

Here is the root of John’s concern. Nobody wants to be the person with perfectly imperfect timing.  This means you buy at the market’s high right before a bear market.  It can be painful. 

The last four major declines were

  • -49%(2000-2003),
  • -57%(2007-2009),
  • -19.4% (2011), and
  • -19.8% (2018).

Seeing your investment drop significantly and quickly isn’t exactly a good time.  But the bigger question we should ask is:

What would have happened if you had bought stocks right before the last 4 bear markets?

Buy Stocks at The top
Click to Enlarge

The Dot Com Bust (2000-2003)

Buying at the top in March of 2000, and holding it until the end of last year, your average return would have been 6% per year. And remember, you would have gone through four total bear markets in those two decades, including the worst one since the great depression.

The Great Recession

The next “top” was in October 2007. If you bought then, by the end of 2019, your average annual return would have been 8.% per year.

Buy Stocks Top
Click to Enlarge
Top of the market
Click to Enlarge

Spring 2011

 Buying the top in the spring of 2011 resulted in an average of return of 12% per year over those 8 plus years.

4th Quarter 2018

The last one was in the fourth quarter of 2018. Buying the top in late September 2018 resulted in a 10% return at the end of last year.

Market Top BUy Stocks
Click to Enlarge

Those returns won’t be as good as someone who was able to avoid those bear markets. But the number of people who can correctly guess those events are few and far between.

If Not Now, When?

The next thing you need to consider: if you don’t buy now, when will you? Do you use a rule or your “gut feeling?”

Some people will set a rule. If the market drops 10 or 15% they’ll buy. But what do you do if prices don’t drop far enough? If your target is 15% lower, and the market only drops 12% before it turns around, you miss opportunities.

Or do you use the “gut feeling” method? You’ll buy when it feels right.

When stocks are declining, the prevailing mood will tell you it’s going to get worse before it gets better. Buying low might be the right thing, but it will also be the hardest thing to do.

Lessons Learned

Here’s what I’ve learned over the past 24 years.  If you have the right mindset, the best time to buy stocks is when you have the money. On March 24, 2000, the closing high for the S&P 500 was 1527.  Four bears and twenty years later, the index closed at 3230.  And two of those bears two are two of the worst we’ve ever seen.

Chances are, and I believe this, we are going to see much higher highs in the future.  Trying to miss the trouble will likely mean you end up missing the returns you want.

What's On Your Mind?

This was a great question, and we are glad John sent it to us.  Do you have a question? We try to answer it on a future episode of Monday Morning Money.

To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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