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    Turbulent Times: Bear Markets Come and Go

    Jakob Bower
    Jakob Bower
    Jakob Bower has over ten years of business experience and resides in Muscatine with his wife, and their two children. Jakob is an active member of the Greater Muscatine Chamber of Commerce and Industry, Young Professionals Network, and theChamber Ambassador Network.

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    The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.1

    Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are sustained increases of 20% or more from the bear market low. However, there is no official declaration, so often there are different interpretations and a fair amount of debate regarding when these cycles begin and end.

    Between February 19 and March 23, the S&P 500 fell 34% and then took just 15 days to bounce back above the 20% threshold that would technically mark the beginning of a new bull market.2 Still, most investors wait to see if volatility subsides and higher prices persist before they cheer the exit of a bear market. In the midst of the pandemic, without a clear economic picture, it could be more difficult than usual to tell whether any market advance is a short-term rally or the start of a longer upward trend.

    Historical Perspective

    The CBOE Volatility Index (VIX) — a closely watched measure of stock market volatility and investor anxiety — hit all-time highs in March 2020.3

    If you are losing sleep over volatility driven by disheartening news, it may help to remember that the economy and the stock market are cyclical. There have been 10 bear markets since 1950 (not counting the one that began in 2020). Each of these declines was triggered by a different set of circumstances, but the market recovered eventually every time.

    On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (–34.2%).

    The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. There are buying opportunities in the midst of the worst downturns. In some cases, people have profited over time by investing carefully just when things seemed bleakest.

    If you’re reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off. Changes in your portfolio don’t necessarily need to happen all at once. Having appropriate asset allocation and diversification is still the fundamental basis of thoughtful investment planning, so try not to let fear derail your long-term goals.

    1–2) Yahoo! Finance, 2020 (data for the period 6/13/1949 to 4/7/2020)
    3) MarketWatch, March 31, 2020

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