A Quick Lesson on Bear, Bull, And…. Kangaroo Markets?
Economy
June 18, 2020
THE BRIEF: Zoology 101
Up, down, up, down, which direction will the market go next week?
- In March, we went through the fastest bear market in history with the S&P 500 dropping over 35% within 4 weeks. This was followed by the greatest 50-day rally in history only to drop another 6% in a single day last week.
- Financial experts commonly use the terms bear and bull markets to describe the direction the stock market is heading. Recently, CNBC news coined a new term, “The Kangaroo Market”.
THE EXPLANATION
The state of the stock market is typically categorized as either a bear or bull market. Bear markets are used to define a stock market where prices are falling over a period of time. On the contrary, bull markets are defined as a period of rising stock prices.
What exactly is a kangaroo market? This can be interpreted as a market that goes up and down over a period of time. So, will this catch on in the financial vocabulary? I wouldn’t count on it.
Over the past century, there have been 11 bear markets, 12 bull markets and 0 kangaroo markets in the US. Of this time period, the economy spent an accumulated total of 15 years in a bear market and 85 years in a bull market. History has proven that bull markets lasted much longer and would move prices much higher than they would fall. The S&P 500 was worth $8.83 back in 1920 and is hovering around $3,000 today. This teaches us two lessons:
- Bear markets are the best time to invest.
- It is never a smart decision to bet against the US economy in the long term.
THE ACTION
Industries that tend to perform better in a bear market:
- Defensive stocks, companies that sell necessities or provide essential services. These sectors include pharmaceutical, consumer staples (food & beverage, hygiene products, tobacco etc), and utility companies.
Industries that tend to perform better in a bull market:
- It varies but the technology industry had the largest number of companies amongst the top-performing companies in the last bull market (2009 – 2020). This list included technology giants like Apple ($AAPL), Amazon ($AMZN), SalesForce ($CRM), Expedia Group ($EXPE) and Nvidia ($NVDA).
