Lazy Saturdays are the best. On one such recent and glorious occasion, I managed to change out of the bathrobe just long enough to patronize my local supermarket. I’ve got four boys, which means no box of pancake mix ever makes it to the expiration date.
One of the four, my son Jake, had come along for the ride. Anything to get away from his brothers for a few minutes, right? They love each other, but if you have siblings you know what I mean.
As I struggled against the force of that wonky left front wheel, my shopping cart limped past the newspaper rack and a title in big bold letters hit me smack in the face. “S&P Briefly Dips Into a Bear Market.”
A day earlier, the Standard & Poor’s 500 index had officially fallen to a negative 20 percent.
I’d like to say I lost my appetite but it would take more than that to keep me from overindulging in maple syrup-soaked goodness. Furthermore, as someone who deals in the world of finance daily, I’ve seen my share of scary news. What caught my eye in this instance wasn’t so much the deflated stock prices but the inflated cost of the newspaper. Right there, above the provocative headline, it said SIX DOLLARS. Six dollars for the paper version of the words many of us read on our phones.
I scroll more pages than I turn, so I hadn’t been closely monitoring the average price of actual print newspapers. Even so, this felt high. After all, inflation is culprit No. 1 for the market’s recent flux.
“That’s inflation for you,’” I said to Jake. “Who would pay six dollars for a newspaper?” he asked. I wondered to myself if the potent headline hadn’t pushed up the price. Did surge pricing exist in print media the way it does in other industries? On the day after Christmas, with a boring front page about heating up leftovers, I doubt my local grocery chain could’ve commanded such a high retail value for each issue.
To put it another way, bear markets, when the market declines 20 percent from its previous high, are like star-studded movie premieres. Beautiful people climb out of stretch limousines as the fans clamor to catch a glimpse. In contrast, recovering markets don’t even get a theatrical release. They slide straight into the bullpen of your streaming service and you don’t even notice until that day you’re home sick from work and desperate for content to consume in between sweaty, fever naps.
Bear markets know how to suck all the oxygen out of the room. First, 20 percent is a big round number. Second, universal fear commands a broad audience. And third, as simple as it sounds, imagery is powerful. It’s easy to conjure up that visual of a ferocious bear, even if it’s deep within the subconscious.
Recoveries aren’t very dramatic or dynamic. No one joins a gym because they’re excited about the proven long-term health benefits. They want shredded lats and v-shaped abs, and they want them now! It’s the same with market recoveries and headlines. Slow growth, while extremely impactful and beneficial, doesn’t sell newspapers.
The degree to which market recoveries are overshadowed triggered my curiosity. I wanted to know how long they normally took. What percentage of the recovery happens at the beginning? The middle? The end? I decided to have our research team open up the history books to find the answers.
Searching for all bear, or near bear, markets in the last 60-plus years pulled up a dozen instances. We discovered that the duration required for prices to return to their previous peak was an average of 1.7 years. Drilling down into the data, it became clear that bear markets associated with recessions recover in an average of 2.5 years, while bear markets without recessions average a 0.7-year recovery.
All useful information, but here’s where it gets riveting. The initial momentum of market recoveries tends to move upward violently and the timing of that spark is unpredictable. Once a market truly bottoms out, which we can only confirm in hindsight, the gains accelerate so quickly that the opportunity to catch them is harder than most people think. In a market like we have today, I get frequent questions from clients and radio listeners who wonder if they should move some stocks over to cash until the storm passes. It’s a completely reasonable question but what these folks don’t realize is how hard it is to time their re-entry into the market.
On average, a full 30 percent of a market’s recovery happens in the first 30 days. In ESPN sports terms, we would call that 30-for-30.
Keep in mind that a fully recovered market, one that has retaken all of the high ground it lost in the downturn, can take a year, two, or even more. 30 days is a faint blip on the radar and those not actively participating will miss out on a big portion of the recovery.
So, if you’ve decided to play musical chairs and move your money to cash until the coast is clear, you might inadvertently still be there long after the music stops. The bulk of the repair happens long before anyone’s talking about it. Remember my grocery store revelation — recoveries don’t make headlines in six-dollar newspapers. Even if you stay fairly current on the news, you still might not be aware of the upward trends until it’s too late to reap a big chunk of the reward.
My financial strategy doesn’t take its cues from the six-dollar newspaper model. I don’t seek out and therefore depend on the sexy option. If I can wait for surge prices to fall before taking an Uber, I do. I don’t invest purely in growth companies. I look for reliable dividend investing options and stick to that even when times are challenging.
When it comes to the stock market, make the choices that allow you to retire sooner and happier. Take a deep breath, look at the historical trends we’ve talked about, and sleep well at night knowing that you’ve put yourself in a good position to achieve the economic security that comes from protecting your future purchasing power.
Sometimes you have to bury the lede before it buries you.
When you see that scary headline and worry about your retirement boat taking on water, ask yourself if jumping overboard is the best solution? If the weather is anything like the historical trends, it will clear up eventually. When it does, do you want to be relaxing on the boat or drifting in the open water? Short-term relief can lead to long-term regret.
The bottom line is that the way to avoid missing out on these recoveries is participation over perfection. The market won’t always look or feel the way you want it to. History shows us that 30 days can be the difference between a significant part of our long-term potential gain. If we miss that 30-for-30, we may never fully recover.
This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
