Read Martha Stokes‘ answer to How is it the stock market keeps going up even though half the businesses in America are closed down and unemployment rate is skyrocketing due to coronavirus?
“You have asked an excellent question. Thank you for asking. The Stock Market is in a Bear Market even though the Financial Services Industry would prefer that the average American not know this reality.
Below is a chart of the S&P500 which is an index of the largest and most important corporations in the US. There are actually 505 companies issues in this index. It is formulated and averaged so it is not the total price of all of these but a value based on this quantitative formula. This is a Monthly Chart so that you can see that this is indeed a Bear Market and that is is just beginning. The monthly chart provides enough data so that you can see the prior two most recent Bear Markets also. The Bear of 2000–2003 and the Bear of 2007–2009. And at the far right hand side, the current bear of 2020 -______.
There were also the SARS epidemic of 2002, and the H1N1 Flu Pandemic of 2009. So all 3 Bears had either had a serious new novel virus develop at some point in the bear cycle. Now, please remember that technical analysis is NOT a predictive tool. It is a graphical tool that uses historical data to study prior market activity to understand the current situation. Every Bear Market is unique but every bear market has similarities to past bear markets. Studying 120 years of bear markets, the average bear loss is 50%. The duration is average 1.9 years depending on the speed of the loss. Slower bear declines last longer, fast steep bears are shorter in duration.
The Stock Market LEADS the economy. In other words, the stock market reflects the corporate and business health at growth potential BEFORE the economy goes into a recession AND before the economy begins to recover and later expand. Studying the history of the past two bears we can see that the stock market recovered well ahead of the economy. The recessions lasted longer but the stock market was already bottoming and moving upward as the recessions continued. It is common for Bear Markets to have 3 phases: Denial, Disbelief, and Capitulation. The recent rebound occurred (indexes and components moving up) occurred precisely at a strong technical support level. Technical indicators signaled early that a rebound aka fake rally was likely as the indexes hit that support level.
Banks acting as Market Makers supported the major index components which are heavily weighted to specific corporations deemed most important to the economy by the banks, financial industry and government. Then the Financial Services Industry, needing inflows of money to stay in business launched a massive promotion to new investors and inexperienced investors telling them that the recent market crash was an “opportunity to buy stocks at bargain prices!”
So many younger investors, or new investors who know nothing about how all of this works as the educational system in the US doesn’t provide education about the financial markets even for college students unless their degree is in financial services. Many new franchises also started recently from the popular neighborhood broker franchises. You see them in the strip malls. These smaller funds managers are new too and trust their corporate statements which tell them how to promote to get more money to place to stay in business. There has been a massive amount of money taken out of the stock market over the past 2 years. Money Market Funds are holding a vast quantity of funds in safety while this bear is still going on. These are the wise, experienced, educated investors who wisely sold during the speculative activity in 2019 to January 2020. The first quarter earnings season starts April 14th. The professional side of the market knows that the earnings reports are going to be the worst since 2008–2009, perhaps worse.
The recent runs up are technically very fragile. There is no longer billions of corporate cash to continue buybacks which fueled the 2018 -2020 speculative bubble. Therefore, this bear market is just on pause for the moment. The market is not in a rally. Stocks are not near their previous all time highs. This is just a bear market bounce. These happen periodically during a bear and mislead the average investor into buying stocks into a bear market…” April 24th, 2020
Her analysis underscores the fragility and the uncertainty many retirement conscious people are experiencing in the markets right now. Contact us today for a free quote about using an indexed annuity to protect 100% of your principal and to create guaranteed, lifetime income.
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