Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
The market has not shown any clear direction this week. However, there is the possibility that the first higher low for this bear market was established earlier this week. A series of higher lows and higher highs would be a welcome sign for a market struggling to gain foothold and is down 24% peak-to-trough.
In the news this week, The US added 372,000 new jobs in June showing continued resilience in the labor market. Gas prices have fallen for three weeks straight, a welcome sign for summer travelers. And at least two Fed officials are in favor of a third 75 basis point high later this month. As it stands, the Fed seems intent on fighting inflation to the point where they’re willing to indue a recessionary bear market.
With that in mind, lets review histories past recessionary bear markets. The US has experienced 17 recessionary bear markets since the 1920’s with the average length at 14 months. The current bear market is about at 6.5 months, just to put it into perspective. Likewise, the average expansion is nearly 4 times as long at 47 months, implying that expansions are typically much longer and more powerful than the contractions.
Furthermore, the average bear market has a -41% contraction which is dwarfed by the average bull market expansion return of 162%. This bear market, however, is not very comparable to a number of historical bear markets like the Great Depression. Removing those outliers from the equation, the average bear market drop is -34% with an average length of 19 months. Compare this to the current contraction of -24%, and we are almost fully pricing in the average comparable bear market.
As the old adage goes, “the market is not the economy.” This is especially true in recessionary bear markets. Typically, the market begins its recovery long before the recession is even over. Take 2008 for instance, where the S&P started its recovery nearly 6 months before the recession was even over. This occurred simultaneously with the worst news of falling real GDP and rising unemployment.
The point I’m trying to get at is the market has already priced in a significant amount of economic pain. Could it get worse? Yes, absolutely. But it could also get better and thus investors need to balance the odds of further losses with the odds of missing the first stages of a bull market rally, which tend to be the strongest and most important for long term investors.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved July 8, 2022, from FactSet Database.
2.JP Morgan Asset Management. Market Insights: Guide to the markets 3Q 2022. Updated June 30, 2022. Retrieved from https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?gclid=CjwKCAjwq5-WBhB7EiwAl-HEks4MiwrMFtDkQqAUEnPvw5mga4ZSSHzzU-EPaxDJ3HJHHt6UPAqavhoCq90QAvD_BwE&gclsrc=aw.ds
3.FactSet Research Systems. (n.d.). S&P 500, Unemployment rate, and Real GDP Growth (2008, Interactive Charts). Retrieved July 8, 2022, from FactSet Database.
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