What can investors expect in the bear market?

The S&P 500 has entered bear market territory (drawdown of >20%), and based on historical data, we’re likely only early in.

What’s the big deal? The markets have been in similar positions several times before. Per the Head of Equity Strategy at Saxo Bank, Peter Garnry (BBG), the current market looks similar to two past bear markets:

• 2000 dot-com burst — known for high tech valuations.
• 1973-1974 bear market — known for high inflation and energy prices.

The bear market lasted 929 and 630 days from peak to bottom, respectively (NYT). In both cases, the S&P 500 lost nearly half its value.

Today, we’re 163 days since the market peak, and the S&P 500 is down 22%. Garnry thinks the bear market could last over a year and the market to be down 35%.

What’s different this time? In recent bear markets, investors could count on the Fed to support the market in its darkest days.

• The Fed would step in and lower interest rates when the market fell too low.
• But not this time. Bringing down inflation is the Fed’s focus, and we’re unlikely to see any support until that happens.

Don’t be fooled: Mark Hulbert of Market Watch looked at the 100 best one-day rallies in the S&P 500 and found that 58 of them occurred during a bear market. These big rallies can be deceiving, and Hulbert suggests not to make any major changes based on them.

We had a brief market rally end of May just to finish even lower today. 2022 is nothing like 2020; in the Fed, we can’t trust.