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"Bear Markets"
The Markets In our
last newsletter we provided a chart of the worst months to
be invested in the Stock Market. It turned out to be pretty
good advice for investors. We hope you moved to or remained
in a conservative stance with your investment portfolios
early last month?
Here is the chart again:
As you probably know by now the Stock Market was down sharply
in September, ending with a melt-down this past Monday when
the House failed to pass the much needed credit relief package.
There was a massive 780 point drop on the Dow Industrial
Average on Monday which set a record for the largest single
day point drop in history.
If you look at the data below
you’ll see that
the performance numbers aren’t
pretty. It has been an ugly year for the stock market to
say the least.
| Returns through 9/19/08 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-0.3 |
-14.2 |
-17.6 |
2.6 |
3.4 |
3.7 |
| Nasdaq Composite |
0.6 |
-14.3 |
-14.9 |
2.0 |
3.6 |
3.1 |
| Standard & Poor's 500 |
0.3 |
-14.5 |
-17.7 |
0.6 |
3.9 |
2.1 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
But let’s forget about the past for
a moment and look to the changes that may be taking place
in the future. Look again at the bar chart above and
you’ll see that the last two months of the year tend
to be positive ones…especially in election years. As
investors we need to look ahead and search for clues that
may indicate a change of direction that may unfold in the
coming few weeks.
From a technical perspective the severe
decline that we saw in the last week of September could have
been a sign
of capitulation for
the market and we could start to see a market that does much
better in the future. Today, Congress
approved a historic bailout and President Bush quickly signed
it. There will be a lot more money coming in to the markets
that may unclog the system and that may be all we need for
a new bull market.
I think the credit mess and the bad stock market have really
depressed a lot of investors. But to paraphrase Warren
Buffet, "We should get greedy when other people are
fearful." When everyone else is panicking, an investor
should start to focus on the opportunities that a bear
market provides.
Please call me at (201) 798-7992 if you
would like to discuss your portfolio and
the opportunities
that we are seeing now.
Thanks for your trust & confidence,
Bear Market Characteristics: With a Recession
and Without?
Since 1950 there have been 16 declines
in the S&P 500
of at least 15 percent. Nine have coincided with recessions.
The charts below show the duration of each bear market in
days. Stand-alone bear markets have tended to be shorter
in duration. The seven year stand-alone bear markets had
an average duration of 215 days. (The current Bear has lasted
almost 1 year if we use the Dow Jones all time high of last
November.)
They include the 1987 decline, which bottomed 55 days from
the peak in the market, and the 45-day correction in 1998.
The 1976 stand-alone bear market was the outlier here, lasting
more than 500 days.
Recession-induced bear markets tend to be longer, more drawn-out
affairs. Stocks head lower over time as bad news continues
to trickle out. The average length of recession-induced bear
markets is 491 days, more than twice the duration of stand-alone
bear markets. The 1990 decline was the only brief recession-induced
bear market, lasting less than 100 days.
The next set of charts shows the decline in the S&P 500
from peak to trough during each bear market. Although the
average decline is similar, there are important differences
in the individual outcomes. Outside of 1987, stand-alone
bear market declines have held in a relatively tight range.
Half of these bear markets (1961, 1966, and 1976) resulted
in roughly 25 percent declines while the other half (1971,
1983, and 1998) experienced between 15 percent and 20 percent
declines.
The depths reached during recession-induced
bear markets have been more variable. In three cases the
S&P 500 dropped
by more than 35 percent, including the bear markets beginning
in 1973 and in 2000. Stocks declined by 36 percent during
the 1968 bear market as investors grappled with the first
recession in almost 10 years, the longest recession-free
stretch up to that point. (Charts and comments provided
by Hussmanfunds.com).
The Power of Compounding
In 1940, surrealist
artist Enrico Donati purchased a Picasso painting for a
reported $12,000. Earlier this year, Donati died at age
99 and his estate is putting the painting up for auction
later this year. Sotheby’s estimates the painting
will fetch $30 million. What do you think is the average
annual rate of return if the painting, purchased for $12,000
in 1940, sells for $30 million later this year?
Click here for the answer.
P.S. DON'T KEEP US A SECRET! At Ford Wealth Management we know that referrals from your friends, family and colleagues are the sincerest form of flattery. We appreciate your business and hope that you will pass along our name and number to anyone who would benefit from our services.
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