Search

the Coronavirus - a Stock Market Correction or a New Bear Market?

I have been talking about the increasing risks of the stock market for months now. Many of the indicators have been warning that something was coming that would catch us off guard. Now just because the indicators were present doesn't mean that we are guaranteed to start a new bear market. Having said that, these indicators have always been current when bear markets begin. Keep in mind; the stock market doesn't get rattled concerning things it doesn't know. It gets shaken on things that it doesn't see coming. That is the most significant risk. A pandemic (a world wide spread of a new disease) definitely caught everyone off guard. The markets didn't start to react until it was evident that this has the potential to be a massive problem for the global economy.


Now let's not get too ahead of ourselves by calling for a new bear market. Even though I could make a very in-depth argument that this will start a new bear market, this also could be nothing more than a correction. You must understand this distinction. A correction occurs when the stock market declines -10 to -20% from its' highest point. As I write, the Dow Jones Industrial Average is heading for correction territory this morning. Corrections are standard parts of a bull market cycle. The last revision that we had occurred at the end of 2018. As with any correction, the decline falls anywhere between -10% and -20% and then rebounds, making up the losses reasonably quick.


Then there are bear markets.


These are periods where the loss exceeds -20% and lasts for an extended period of time. The last bear market was 2007 to 2009, and the stock market dropped -55%, making it the second-largest drop next to the -86% drop that started in 1929 and lasted until 1932. Corrections can be scary. However, they are not the game-changer that a bear market will be. So this is our first question to be answered. I will keep you posted on these pages on any new developments.


In the meantime, you are welcome to take me up on two opportunities. First, if you want an analysis as to where you are investment/retirement wise and where you want to be, let's schedule a no-cost, no strings attached visit where we can talk through your situation. Second, if you want to specifically talk about how I am managing risk for my clients with a Plan B approach, we can have that discussion as well. Contact my assistant, Heather Sims, at heather@prudentmoney.com to get on my calendar. Most importantly, I will keep you informed on the radio show as well as my blog on what you need to know.