How We Look at It

Photo by  Hans Eiskonen  

Photo by Hans Eiskonen 

Gary R. Matthews, PhD CPA/PFS AIF

You might have read, or even heard me say, that we are experiencing a very long bull market. Indeed, it’s the second-longest bull market since World War II – it started in March of 2009 and has continued without a bear market (defined as a decline of 20%) since. Well, yes and no.

Bob Veres, a well-known financial journalist, points to several recent articles asserting that, in fact, we experienced a “stealth” bear market during the period from May to October 2011.  In that 6-month downturn, the S&P 500 index fell 21.6%, breaching bear market territory. But there’s a catch: based on closing prices rather than intraday moves, the decline was 19.4%, barely missing the strictest bear market definition.  However, in the same interval, the Russell 2000 index of small cap stocks fell 30.7%.

The markets experienced a similar market decline from mid-2015 to early 2016.  During that time, the S&P 500 index fell 15%, but the median stock within the index was down 25%, the Russell 2000 fell 27%, and the Dow Jones Transportation Average fell 32%. At the same time, emerging-market stocks were down 40%, Chinese stocks fell 49% and Japanese stocks dropped 29%.

The point here is that the popular definition of a bear market (a 20% decline in one particular index) is arbitrary and rather narrow, and it misses a lot of the turbulence that might help us better define whether the markets are on an uninterrupted rise or merely recovering from the last downturn.

In fact, given the two downturns described above, we could say the markets have been acting rather normally. A long, uninterrupted uptick in the markets might be cause for investor fears of another major downturn like in 2009. While that is certainly not out of the question, nothing in the market movements since 2009 would indicate it is likely.    

This, in turn, should enable investors, in particular SRI investors, to do more easily what they should do in any event – that is, stick to their long-term investment plan and do nothing out of fear.