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The Anatomy of a Bear Market

If you’re curious about how the current stock market situation relates to past bear markets, look no further. Here’s what you need to know.

The term “bear market” is on everyone’s mind these days given the significant hit to the stock market and the subsequent economic shutdown caused by the coronavirus pandemic. Is this going to be a historic occasion or just a blip?

The data tells us everything. At 0:55 in the video above, you can see the market has lived through a lot of different events, although none quite like COVID-19. If you look back historically, there are wars, famine, and other viruses that have affected our market. The market has suffered dips and valleys, but over time the market has always gone up.

If you look at historical, post-war bear markets, the average decline is around 40%. In mid-March, the market went down by around 36% in the shortest time we’ve ever seen. If the average bear market has a 40% drop, some might think we’re at or near the end of the current dip. We’ll have to wait and see exactly where the stock market ends up going, but we may have suffered the worst of the correction already.

There is an opportunity for growth in this market.

At 3:09 in the video above, the chart shows that, from what we’ve seen so far, there is panic in the market, but not capitulation. The dip from last week is in there, but it’s not as low as other dips we’ve seen in the past. It appears that a big chunk of the sell-off is in our rear-view mirror. 

At 3:58, the graph shows the bear market we saw during the Great Depression. After the initial crash, the market went back up before dipping even further. It’s a good example of a bear market that isn’t always going down.

The market crash of 1987 is pretty familiar to what we’re seeing now: A big sell-off followed by a few days of increases. The market took about 32 days to bottom out in that instance. When the tech bubble burst near the year 2000, we saw the same kind of thing.

What about the global financial crisis of 2008? Much like the previous crashes, we were getting new and unfortunate info that continued to unfold every few months with new bankruptcies, rules, and regulations.

Is that where we are right now? Every cycle is different, and this one certainly will be, but what we do know is that given the information we have right now, the coronavirus is something that will have massive exposure. The rate in new cases will eventually top off and then it will go down. If you look around the world, some places like China are already heading back to work.

As an investor, you need to look at bear markets as potential opportunities to take advantage of the market lows.  So look at your portfolio, look at opportunities for growth, and dive in accordingly and ask for help if you need it!

If you have any questions for us in the meantime, don’t hesitate to reach out via phone or email. We look forward to hearing from you.

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