Can We Outrun This Grizzly Bear?

by | May 11, 2020 | Commentary & Insights | 0 comments

In the world of investing, a “bear market” describes a fall in the stock market of 20% or more from its previous peak, while a move in the opposite direction of the same magnitude is termed a “bull market”.

There are several theories as to where these phrases originate from, the most intuitive being the unique way each animal attacks. While a bear swipes across or downwards, a bull will thrust with its horns from low to high in a rising motion.

Just like there are different varieties of bulls and bears, their investment equivalents also come in different shapes and sizes. The most recent bear market can be most accurately compared to the grizzly bear, one of the fastest and most aggressive bears on the planet.

The recent bear market has been one of the swiftest on record and it took just 16 days for the S&P 500 (a US equity market index) to fall 20%.

As shown below, the downward move in stocks, which began in the middle of February as a result of the Coronavirus outbreak, has indeed been grizzly.

Interestingly, not only has the way down been rapid but the subsequent recovery has also moved in a similar fashion.

While each bear market is unique and a product of different circumstances, history can be a useful guide (our only guide in fact) as to what might happen going forwards.

As shown below, looking back at the S&P 500’s performance since the end of World War Two, we can see that the speed of the recovery usually somewhat mirrors the speed of fall.

This correlation is by no means perfect, but it does give some indication that the speed of this recent drop in markets could easily be followed by an equally fast recovery.

If we consider the driving forces behind this recent bear market, there are other reasons to be hopeful of a quicker rebound. The global economy has essentially been put into deep freeze by governments introducing social-distancing measures. However, to help offset the economic impact they have also offered unprecedented support to individuals and businesses alike.

While the world remains in and then begins to transition out of lockdown, these measures essentially aim to replace businesses’ revenues and consumers’ income. The intention is that when lockdown is lifted, the global economy can get back up and running as swiftly as possible.

It is inevitable that some companies will fall through the cracks and it would be foolish to think that there will not be some economic casualties suffered as a result of this crisis. However, the stimulus from governments and central banks, which has been swiftly implemented, is considerably larger than anything we have seen before, including the action seen during the 2008 Great Financial Crisis.

We must also remember that events of this type have in the past driven change and innovation in the world of businesses, leading to more efficient and profitable companies. Some of today’s most successful and highly valued businesses were either resurrected following, or born out of, previous recessions. These include Apple, Uber, Microsoft and Airbnb to name a few.

Ultimately, we are confident that the global economy and the businesses that operate within it will have the legs to outrun this grizzly bear!

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General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

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