The Easiest Bear Market to Tame
Americans are practicing “social distancing.”
We’re working remotely and avoiding crowds.
“It’s time to hunker down,” we’re told.
The question is, for how long?
Investors – especially those near or in retirement – need to know when the markets will recover.
Because time is of the essence.
Well, the wait may not be as long as you might think.
The Bears Rolling in Money
At my local grocery stores, the shelves are bare.
Even the never-ending pantry at AmazonFresh is out of household items.
But the true nod to the panic that’s unfolding is, in the wake of the Great Toilet Paper Shortage of 2020, bidet sales are skyrocketing!
As the toilet-paper-hoarding madness gains steam, some bidet companies are seeing sales increase 300% to as much as tenfold. Some are even completely out of stock.
And I’m sure those Charmin bears are rolling in the dough too.
Concerts, conferences and even primary elections have been postponed or canceled under the threat of COVID-19.
Schools are closed. Business and personal travel has been halted. Cruises are abandoned.
The U.S. economy has stopped on a dime.
And the markets are in chaos…
The Dow Jones Industrial Average, Nasdaq, S&P 500 and Russell 2000 are all in bear market territory.
In roughly a month, they went from all-time highs to multiyear lows.
It was the fastest sell-off in history.
Of course, the front lines of the economy – the small caps on the Russell – are feeling the brunt of the pain.
But the time it’ll take to regain those highs could be shorter than most investors think.
A Different Breed of Bear
Some of the most dangerous, expensive words in history are “This time will be different.”
And though we are officially in a bear market, I want to make a distinction…
A couple of weeks back, I outlined the recovery periods for corrections versus bear markets.
But I want to get a little bit more granular and compare our current bear market to the same breed.
There are structural bear markets, cyclical bear markets and event-driven bear markets. And each has a different average decline, duration and time to recover.
We’re in what’s known as an event-driven bear market, triggered by an exogenous shock. Like the 1973 oil crisis, a war or something similar.
Of all the breeds of bears, this is the easiest to tame.
Event-driven bear markets recover much faster than any other bear market. In fact, the six we’ve seen since 1960 have lasted an average of 418.4 days, or roughly 13.75 months.
That’s a considerably shorter uphill climb than what we’ve seen with structural or cyclical declines.
So our current bear market looks to be in line for a very short life span.
But there is one last piece of data investors need to be aware of…
That lasagna-scarfing Garfield famously hates Mondays.
And so do the markets – now more than ever.
When we get into periods where the market’s twists and turns are fueled by these external shocks, weekends often become the most treacherous terrain for investors.
Even though the exchanges are closed, the news flow doesn’t stop.
Tension can build up. And all that energy is unleashed in a fury on Monday mornings.
Of the 13 all-time unluckiest days for investors, five of them have fallen on Mondays.
Those include the three largest percentage losses ever for the Dow.
Black Monday isn’t a one-time event. It’s on repeat.
We’ve suffered two Black Mondays already in March. And since February 10, the Dow has ended lower on four of the six Mondays. Of course, one of the other two Mondays saw one of the largest percentage gains in history.
So Mondays have been wild rides.
I want investors to pay special attention to the chart because it’s a testament to the complete market meltdown we’ve recently witnessed. Three of the largest drops in the Dow’s history have unfolded in the past two weeks.
I might not know when the Great Toilet Paper Shortage of 2020 will come to an end. But the good news is I do know that event-driven bear markets – like the one we’re in – are the shortest kind of downturn out there.
Investors likely won’t have to wait years for a recovery – merely months.
The road ahead will be bumpy. And investors need to be wary of Mondays in the weeks ahead… at least until the spread of COVID-19 has peaked.
Here’s to high returns,