As you are likely aware, I've been at this game for a fair amount of time now. Starting in the financial services business straight out of college in 1980, I began gravitating toward the stock market and by 1987 my colleagues and I were managing "OPM" (other people's money) on a discretionary basis. As such, my first introduction to a bear market was very early in my career.
Needless to say, the "Crash of '87" and the ensuing volatility over the next few years shaped my thinking about the need to manage risk in this game. And to this day, I view myself first and foremost as a manager of risk.
I bring this up on this fine summer Tuesday because stock market investors have enjoyed the second longest period in history without a -20% decline. Heck, this is also one of the longest stretches without even a -5% correction. So, using history as a guide, the key point I'd like to make this morning is simple. The bears are due.
The problem however is that trying to "call" a bear market in advance is a fool's errand. First, it is important to understand that they just don't happen very often. And second, please note that there is generally some sort of catalyst to get things moving in earnest to the downside - a "trigger" that most don't see coming.
So, this morning I'd like to share some of the things I've learned about the bear markets I've experienced in my 30+ years of managing money in the stock market.
For starters, long-term investors should remember that bear markets tend to be few and far between. During my career, the bears took control in 1987, 1990, 1998, 2000-02, 2008, 2011, and then most recently between August 2015 and February 2016.
Below are some of the key things to know about bear markets.
To be sure, the above is not an exhaustive summary of how bears work and/or begin. However, I find it useful every now and again to remind myself of how many bears have unfolded in the past.
I'd also like to make it clear that I am not "calling" for a bear market to begin. But given that (a) valuations are high, (b) rates are on the rise as global central bankers end their stimulus cycles, (c) stock market momentum has peaked, (d) the cycle projections are calling for a decline in the second half of the year, and (e) the last 20% decline is now a long time past, I don't think it hurts to recognize that risks are elevated and that perhaps this is not the time to have the pedal to the metal in one's portfolio.
The good news is that the secular bull remains intact and therefore, a "buy the dips" strategy continues to make sense.
Thought For The Day:
It is possible to train your mind to see the good in everything.
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of the U.S. Economic Growth (Strong enough to justify valuations?)
2. The State of Earnings Growth (Ditto)
3. The State of Trump Administration Policies
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Officer
Sowell Management Services
Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.
The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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