On this audio podcast, Miguel Gonzalez explains what a bear market is and why it matters to you.
Welcome to Cortburg Speaks Retirement Podcast
with Miguel Gonzalez, MBA, AIF®, CPFA®, CRC®
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On this audio podcast, Miguel Gonzalez explains what a bear market is and why it matters to you.
Welcome to Cortburg Speaks Retirement Podcast
with Miguel Gonzalez, MBA, AIF®, CPFA®, CRC®
CLICK HERE TO LISTEN TO MIGUEL'S LATEST PODCAST
FOLLOW US ON:
INTRODUCTION
Welcome to Cortburg Speaks Retirement
An audio podcast about investing in the stock market, financial planning, money management and retirement planning. Each Wednesday, we help investors at all stages of life learn how to potentially grow and preserve their money from first job through retirement.
Now here is your host, Miguel Gonzalez.
HOST
Good morning and welcome to the CORTBURG SPEAKS RETIREMENT audio podcast.
On this week’s audio podcast, I explain what a bear market is and why it matters to you.
A 16th-century proverb advises: “It’s unwise to sell a bear’s skin before catching it.”
That’s one of the stories used to explain why, in modern times, Wall Street types call someone who sells a stock expecting its price to drop a “bear.” It follows that a market in which securities or commodities are persistently declining in value is known as a “bear market,” like the one U.S. stocks are experiencing now.
The opposite, when assets are steadily rising over a period of time, is a “bull market.”
In my money and banking classes, I teach students about the efficient market hypothesis, which states that stock prices are rational, in that they are always fairly priced based on available information. But when there are big swings in the stock market, it’s hard for my students and others to resist using more emotive terms like “bulls” and “bears,” which call to mind the “animal spirits” of investing.
So how do you know when you’re in a bear market?
The Securities and Exchange Control Commission defines a bear market as a period of at least two months when a broad market – measured by an index such as the S&P 500 – falls by 20% or more. When it rises by 20% or more over two months or more, it is a bull market.
The Standard & Poor’s 500 index, which includes most of the most well-known U.S. companies, has declined about 24% since its peak on Jan. 3, 2022.
Not everyone strictly follows this two-month rule. For example, in March 2020, when the S&P 500 plunged 34% in a matter of weeks due to the onset of the COVID-19 pandemic, many analysts still called it a “bear market.”
A milder form of a bear market is “correction.” During a correction, prices drop by 10% to 20% from the previous peak. Some analysts estimate there have been 26 bear markets in the S&P 500 since 1928, excluding the one that began in 2022. The average length was 289 days, with a decline of about 36%. The longest was in 1973- 74 and lasted 630 days.
There have been fewer distinct bull markets, with 24 in that period. They tend to last a lot longer, though, often for multiple years.
Why a bear market matters
A bear market may signal a recession is coming, though it’s not a perfect correlation. Since World War II, there have been three bear markets – out of a total of 12 – that didn’t precede a recession.
A bear market is bad news for anyone with a stock investment, whether it’s a direct stake in Apple or Walmart or a 401(k).
The impact is particularly hard on recent retirees, who are seeing their nest eggs shrink just as they need to start withdrawing income from them.
In addition, entering a bear market can have a psychological impact on investors, creating a self- fulfilling cycle. Perceiving a bear market tends to prompt investors to sell even more, thus pushing prices down further and prolonging the pain.
Make sure to visit our website, www.CortburgRetirement.com. Our site is filled with educational videos, eBooks, publications, and financial calculators designed to help you learn more about your finances. As you search our site, send us a note regarding any questions you may have about any particular investment concepts or products. We will get back to you quickly with a thoughtful answer.
This is Miguel Gonzalez, Certified Retirement Counselor (CRC) and Managing Partner, with Cortburg Retirement Advisors signing off for this week’s educational podcast.
DISCLOSURES
Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security. Please consult your financial professional before making any investment decision.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
CRC conferred by The International Foundation for Retirement Education.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Private Advisor Group, LLC, a registered investment advisor.
Private Advisor Group, LLC and Cortburg Retirement Advisors, Inc. are separate entities from LPL Financial.
Investing involves risk including possible loss of principal.
· Author Vidhura S Tennekoon, Assistant Professor of Economics, IUPUI. Vidhura S Tennekoon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment. Indiana University provides funding as a member of The Conversation US.
· The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
· Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
· Past performance is no guarantee of future results.
· S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.
· All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
· This article was prepared by RSW Publishing.
· RSW Publishing has an agreement to republish this author's content.