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.
Following the 9.7% decline in value for the S&P 500, the index recovered about half of that decline before falling again on Thursday with a broad technology sell off.
In the news this week, stocks fell on Thursday after a disappointing earnings call from Facebook parent company, Meta. The bank of England raised rates for the second time as the central bank continues to fight inflation. And today, the US added 467,000 new jobs in January while he unemployment rate ticked up slightly to 4%.
Since we are in the middle of our first significant pullback in a number of months, I thought I’d spend some time explaining the difference between a recessionary bear market and your standard, run-of-the-mill correction. Recessionary bear markets, like we see here in 2008 marked in grey, are significant pullbacks associated with an economic recession. They are usually significant in size, in this case a 56% loss. And it usually takes a long period of time to fully recover the value lost.
During non-recessionary bear markets, like here in 2011, the pullback is usually not as deep in this case 18%. And the recovery is typically a much shorter time period. These types of bear markets do not result in an economic recession and are usually entirely reactionary from the market itself.
In the post-World War 2 era, the average recessionary bear market sees a 33% pullback in value for the S&P 500 coupled with a 23.8% decline in earnings. On average, these bear markets take 25 months to fully recover.
For non-recessionary bear markets, the average decline is 24.2% and there is minimal impact to earnings. The average time to recovery is only 11 months. Since earnings are considered the life-blood of the stock market, an economic impact to earnings typically causes a more severe impact to the value of the stock market, resulting in a recessionary bear market. If there is no impact on earnings, then a recessionary bear market typically does not occur and the correction is thus, less violent.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved February 4, 2022, from FactSet Database.
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