What a time of political, medical and financial news! Daily market commentary from asset managers, daily messages from my daughter’s school (all students’ temperatures have been taken daily on arrival for the last 2 weeks) and my stock market app has been flashing red, green, red and more red. Let’s see what today brings.
If the stock-market decline triggered by the coronavirus outbreak and the oil price slump is like past drops, there’s both good and bad news.
After a long (largely uninterrupted) run of share price appreciation since 2009, one of the longest bull markets in history, we have now entered a bear market, broadly defined as a 20% drop from recent highs.
Goldman Sachs pointed out that this week that we have never before entered a bear market because of a viral outbreak but that it may be useful to consider the history of bear markets to get a sense of their duration and intensity. There are different types of bear markets which can be described as follows (statistics from GS who analysed bear markets going back to 1835).
Structural bear markets are those created by imbalances and financial bubbles, very often followed by a price shock like deflation. Structural bear markets, on average, experience drops of 57%.
Cyclical bear markets are typically a function of the economic cycle, marked by rising interest rates, impending recessions and falls in profits. Cyclical bear markets experience drops of 31%.
Event driven bear market refers to things like a war, oil price shock or an emerging-market crisis. On average, this type of bear market results in 29% declines. The current crisis is event driven. Monetary response by central banks should be effective but time will tell. However, this is a new territory: an environment of fear where consumers are forced, or just inclined, to stay at home.
The good news is that bear markets triggered by exogenous shocks typically regain their previous levels within 15 months.
Whatever your view is on the markets, my advice is don’t try to predict the future. A recovery is inevitable and we trust professionals to skillfully manage our clients’ funds. We sometimes respond emotionally to stock market decline and volatility, but there is usually no merit in either reacting to, or trying to forecast, short term market events.
Don’t delay your financial plans. For planning, yesterday is better than today, which is better than tomorrow. Contact me, Victoria Lewis, if you want to discuss how you should react to these events.