It happened in 1990. Again 2000. Then again in 2008. And it’s happening right now… A market pullback, down market, or a bear market.
So, what is a bear market? These pullbacks are sustained periods of downward trending stock prices, often from a near-term high and falling at least 20 percent. Another defining characteristic is a period when investors tend to avoid risk. Bear markets are often accompanied by rising unemployment and economic recession, though several of the bear markets haven’t thrown the country into recession. Still, some of the most famous bear markets include the Great Depression and Great Recession.
Bear markets have happened throughout history, for many different reasons. Though every major bear market looks different when you’re inside it, ultimately none of them are different. Regardless of why, this time is never different.
The COVID-19 pandemic sent the economy into a tailspin. It wasn’t the only reason the market had a fit, but it seemed to be the catalyst.
Unless you’ve been living under a rock, you’re aware of the coronavirus pandemic that started in Wuhan, in China’s Hubei province in 2019. The disease swept through China and leaked from its borders shutting down entire countries.
As governments tried to contain the virus, travel ground to a halt. People started hoarding hand sanitizer, toilet paper, and face masks. Tests for the illness were few and far between. And the death toll rose.
Businesses closed under social distancing and shelter-at-home rules in efforts to “flatten the curve” and prevent hospital overwhelm. Unemployment hit a record high and Zoom meetings became the new norm. Amid all this, the price of oil dropped to a new 21-year low, dipping into the negative for the first time in history.
It was a perfect storm of fear and uncertainty. And the market responded in kind.
You probably have questions. If you’re like the rest of the country, you wonder if stocks will go lower? Will the virus continue, and will you get it? As the country opens back up, will things go back to normal? Will life ever look like it used to before coronavirus?
We can’t know the answer to any of these questions. But we can remember the infamous date of September 11, 2001 and reflect on the resiliency of the American people—of humanity in general.
After the twin towers were hit and the nation reeled, whispers of World War III swept the country as virulent as any disease. American’s lived in fear waiting for the next attack. So many were certain that we were one nuclear attack away from destruction.
If you remember, the stock market shut down for nearly a week. You probably remember wondering if life would ever go back to the way it had been before, just like now.
In some ways, life never did return to pre-attack normal. We could never return to a time where New York City’s skyline still has those iconic towers. We experienced a change in air travel and security increased to help keep us safe in the air. The random searches may be fewer and far between but going through the TSA security check is a far different experience today.
But the fear we felt dissipated. We stopped waiting for the next seemingly inevitable attack to come. For most of us, we adjusted to the changes. While we’ll never forget, we live our lives without the persistent shadow of the tragedy looming over us. Life shifted into a new normal.
Right now, while the fires of coronavirus still sweep our country, we feel the heat of the flames that are burning down our normal. But when the blaze abates, a new normal will grow from the ashes. We can’t tell you when, but as far as the market is concerned, history shows that the market always comes back. We feel that this time will be no different. Stocks could go lower. The virus could continue for some time, perhaps even spiking as the country opens back up. But history shows that life will go back to what feels like normal, though a slightly new normal.
In the words of Nick Murray, “But ‘This time it’s different’ will forever turn out to be the failed investor’s four-word death song.”
It’s not easy. Living with fear and uncertainty never is. The market will most certainly rebound, as it always has. And it will most certainly pullback again. Riding out the ups and downs of the market is the only sure way to capture the market’s advance.
Now and always, our advice is to not give into fear and ride it out.