Don’t Fear the Bear
May 27, 2022
The unofficial start to summer is upon us this weekend and it couldn’t get here fast enough for people in Chicago and the stock market. For people in Chicago, the 40-something degree temperatures in the morning have gotten old. For the market, the last couple months have been, well, yeesh.
One of the first things you often hear about markets is that they’re cyclical. Bear markets follow bull markets and bull markets follow bear markets. It’s just how things work. Panicking in the face of a bear market is semi understandable, but it’s also unnecessary.
A bear market is defined as a 20% pullback from its highs. For the Nasdaq, we’ve met that threshold and then some. The S&P 500 has flirted with that 20% number but managed to stay out of technical bear market territory. But the question we should be asking is, are bear markets bad?
The average bull market lasts just under 3 years. Historically, equities have returned around 8% annually with dividends. In the last decade, the S&P 500 has averaged over 14% and the Nasdaq has returned over 23% not including 2022 (if you include 2022 that average is still over 18%). And we haven’t seen a bear market since the end of the housing crisis. In other words, this market is extended and that has consequences, both good and bad.
The good is pretty obvious. If you’ve been long in this market for the last decade, you’re probably loving capitalism. But for the vast majority of people, stocks are unaffordable and perhaps aside from your 401K, you haven’t participated much and the income inequality gap has widened to your detriment.
A bear market is not the end of the world. In fact, it can be good. From time to time, markets need to burn a little, like a controlled forest fire, so new life can spring up. Companies with undeserving valuations should see money flow out and into companies with better potential. Those are the companies that will create jobs. Those are the companies that will largely form our future. Those are the companies that will innovate.
Bear markets are not to be feared. They are simply a part of the circle of life. Bear markets are creative destruction on a mass scale. They create opportunities. So instead of panicking if markets continue pulling back that the end of the world is upon us, try embracing the opportunity they create and know there’s a bull market coming next.Written by Dylan Ratigan and Josh Fabian
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