A veteran chief investment officer says we’re in the ‘last phase of the bear market’ and encourages investors to start shopping (2024)

FAQs

What is the last phase of the bear market? ›

In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull markets.

This moving average is the average closing price of the index over the previous 10 months. The indicator flashes that a bear market is ending and a new bull market is beginning any time the S&P 500 closes above its 10-month moving average for two consecutive months.

A bear market is an extended period of declining stock prices, marked by a 20% dip in a major index like the Dow Jones Industrial Average or the S&P 500. A bull market is the opposite: a period of rising stock prices, where major indices grow by 20% or more from recent lows.

“The bear [market] is almost over, and a new exciting bull market awaits in the second half of 2023,” he said, pointing to potential in technology stocks in particular.

Bear-market psychology follows a progression that is similar to what psychologists call the five stages of grief — denial, anger, bargaining, depression and acceptance.

Widening credit spreads are a clear indicator of a potential bear market. In addition to looking at Treasuries and corporate bonds, some investors look at high-yield bonds (e.g., junk bonds) versus investment-grade corporate bonds.

Bear markets tend to be short-lived.

The average length of a bear market is 292 days, or about 9.7 months. That's significantly shorter than the average length of a bull market, which is 992 days or 2.7 years. Every 3.5 years: That's the long-term average frequency between bear markets.

According to Wall Street veteran Bob Farrell, who combined technical analysis with various measures of investor sentiment, a bear market has three stages—sharp down, reflexive rebound, and drawn-out fundamental downtrend.

There are essentially 3 stages of a bear market: The Unwinding Stage, The Reflexive Rebound, and The Bottomless Exhaustion. Let's uncover them and understand how the market evolves.

How many stages are there in bear market? ›

“Bear markets usually come in three stages.

That meant the S&P 500 suffered its longest bear market since the 484 trading days ending in May 15, 1948. Excluding this most recent bear market, the average bear market lasted 142 trading days.

The end of the bear market will coincide with credit market stress, possibly stemming from falling house prices, Hartnett wrote. Until then, cash is as good as bonds and stocks, he said.

"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.

Every bear market causes feelings of panic and despair. They make you question your previously held investing beliefs. They force you to consider whether or not you have the intestinal fortitude to stick with your long-term investing plan.

It could take months or even years for the market to fully recover, but it will rebound eventually. In the short term, there's a chance that your investments will take a hit. Over the long run, though, you're far more likely to see positive average returns.

And while we're talking about things that have happened since WWII, bear markets — when stocks fall 20% or more from their recent highs — have taken an average of about 12 months to hit bottom.

Not usually. Bear markets can last for years and capitulation only becomes evident in hindsight.

The Two Percent Rule: A bear market typically declines by about 2% per month. (Exhibit 1) Sometimes it declines by more than 2%, sometimes it's less—but overall and on average, bear markets don't often begin with the sharp, sudden drop some anticipate.

“Bear markets usually come in three stages.

What are the three phases of the bear market? ›

According to Wall Street veteran Bob Farrell, who combined technical analysis with various measures of investor sentiment, a bear market has three stages—sharp down, reflexive rebound, and drawn-out fundamental downtrend.

Stage 3 is when a stock stops going up and tops out. This is when you want to sell it. Then, you get to Stage 4, when a stock rolls over and enters a downtrend. You want to avoid stocks during this phase.

One year and three months. The total length of time that the bear market of 2007 to 2009 lasted. The S&P 500 lost 51.9% of its value.

A bear market has lasted an average of 14 months. A bull market has had an average lifespan of about 60 months. A bear market has had an average decline of around –33%.

The average bear market lasts less than a year, and investors can mitigate the effects through simple techniques such as dollar-cost averaging, diversification, investing in relatively recession-resistant sectors and focusing on the long-term.

Stage 4: Downtrends

The stage often begins on high volatility but ends on low volatility because apathy and disinterest have taken their toll, dropping the security's volume to cyclical lows. Short positions taken early in a downtrend carry higher risk and higher reward than late in the decline.

There are four phases of the stock cycle: accumulation; markup; distribution; and markdown. The stock cycle is based on perceived cash flows into and out of securities by large financial institutions.

Examples of Level 3 assets include mortgage-backed securities (MBS), private equity shares, complex derivatives, foreign stocks, and distressed debt.

To date, the deepest and most prolonged bear market was the 1929-1932 slump that was accompanied by the Great Depression.

2008: In response to the housing bubble and subprime mortgage crisis, the S&P 500 lost nearly half its value and took two years to recover.